Correlation Between McDonalds and Invesco FTSE

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

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

Diversification Opportunities for McDonalds and Invesco FTSE

-0.46

Correlation Coefficient

McDonalds  Invesco FTSE

Very good diversification

The 3 months correlation between McDonalds and Invesco is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Invesco FTSE RAFI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco FTSE RAFI 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 Invesco FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco FTSE RAFI has no effect on the direction of McDonalds i.e., McDonalds and Invesco FTSE go up and down completely randomly.

Pair Corralation between McDonalds and Invesco FTSE

Considering the 90-day investment horizon McDonalds is expected to generate 1.12 times more return on investment than Invesco FTSE. However, McDonalds is 1.12 times more volatile than Invesco FTSE RAFI. It trades about -0.06 of its potential returns per unit of risk. Invesco FTSE RAFI is currently generating about -0.21 per unit of risk. If you would invest  27,774  in McDonalds on February 2, 2024 and sell it today you would lose (331.00) from holding McDonalds or give up 1.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

McDonalds  vs.  Invesco FTSE RAFI

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 fragile 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.

Invesco FTSE RAFI

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco FTSE RAFI are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Invesco FTSE is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with McDonalds and Invesco FTSE

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

The idea behind McDonalds and Invesco FTSE RAFI 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..