Correlation Between McDonalds and ABB

Can any of the company-specific risk be diversified away by investing in both McDonalds and ABB at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining McDonalds and ABB into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between McDonalds and ABB Ltd ADR, you can compare the effects of market volatilities on McDonalds and ABB and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in McDonalds with a short position of ABB. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and ABB.

Diversification Opportunities for McDonalds and ABB

-0.76

Correlation Coefficient

McDonalds  ABB

Pay attention - limited upside

The 3 months correlation between McDonalds and ABB is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and ABB Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB Ltd ADR and McDonalds is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on McDonalds are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB Ltd ADR has no effect on the direction of McDonalds i.e., McDonalds and ABB go up and down completely randomly.

Pair Corralation between McDonalds and ABB

If you would invest  3,900  in ABB Ltd ADR on February 3, 2024 and sell it today you would earn a total of  0.00  from holding ABB Ltd ADR or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	4.55%
Values	Daily Returns

McDonalds  vs.  ABB Ltd ADR

McDonalds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McDonalds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, McDonalds is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

ABB Ltd ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABB Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, ABB is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with McDonalds and ABB

The main advantage of trading using opposite McDonalds and ABB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, ABB can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in ABB will offset losses from the drop in ABB's long position.

The idea behind McDonalds and ABB Ltd ADR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.