Correlation Between McDonalds and Ford

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Can any of the company-specific risk be diversified away by investing in both McDonalds and Ford 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 Ford into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Ford Motor, you can compare the effects of market volatilities on McDonalds and Ford 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 Ford. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Ford.

Diversification Opportunities for McDonalds and Ford

-0.51
  Correlation Coefficient

Excellent diversification

The 3 months correlation between McDonalds and Ford is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor 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 Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of McDonalds i.e., McDonalds and Ford go up and down completely randomly.

Pair Corralation between McDonalds and Ford

Considering the 90-day investment horizon McDonalds is expected to generate 0.42 times more return on investment than Ford. However, McDonalds is 2.38 times less risky than Ford. It trades about 0.04 of its potential returns per unit of risk. Ford Motor is currently generating about 0.01 per unit of risk. If you would invest  23,951  in McDonalds on December 30, 2023 and sell it today you would earn a total of  4,244  from holding McDonalds or generate 17.72% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

McDonalds  vs.  Ford Motor

 Performance 
       Timeline  
McDonalds 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.
Ford Motor 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal technical and fundamental indicators, Ford reported solid returns over the last few months and may actually be approaching a breakup point.

McDonalds and Ford Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with McDonalds and Ford

The main advantage of trading using opposite McDonalds and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Ford 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 Ford will offset losses from the drop in Ford's long position.
The idea behind McDonalds and Ford Motor 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.
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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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