Correlation Between McDonalds and Nio

Can any of the company-specific risk be diversified away by investing in both McDonalds and Nio 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 Nio into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between McDonalds and Nio Class A, you can compare the effects of market volatilities on McDonalds and Nio 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 Nio. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Nio.

Diversification Opportunities for McDonalds and Nio

0.85

Correlation Coefficient

McDonalds  Nio

Very poor diversification

The 3 months correlation between McDonalds and Nio is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Nio Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nio Class A 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 Nio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nio Class A has no effect on the direction of McDonalds i.e., McDonalds and Nio go up and down completely randomly.

Pair Corralation between McDonalds and Nio

Considering the 90-day investment horizon McDonalds is expected to under-perform the Nio. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 5.74 times less risky than Nio. The stock trades about -0.11 of its potential returns per unit of risk. The Nio Class A is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  464.00  in Nio Class A on February 1, 2024 and sell it today you would earn a total of  63.00  from holding Nio Class A or generate 13.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

McDonalds  vs.  Nio Class A

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 latest uncertain performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Nio Class A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nio Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with McDonalds and Nio

The main advantage of trading using opposite McDonalds and Nio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Nio 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 Nio will offset losses from the drop in Nio's long position.

The idea behind McDonalds and Nio Class A 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.