Correlation Between Procter Gamble and McDonalds
Can any of the company-specific risk be diversified away by investing in both Procter Gamble and McDonalds 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 Procter Gamble and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Procter Gamble and McDonalds, you can compare the effects of market volatilities on Procter Gamble and McDonalds 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 Procter Gamble with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Procter Gamble and McDonalds.
Diversification Opportunities for Procter Gamble and McDonalds
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Procter and McDonalds is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Procter Gamble 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 Procter Gamble are associated (or correlated) with McDonalds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds has no effect on the direction of Procter Gamble i.e., Procter Gamble and McDonalds go up and down completely randomly.
Pair Corralation between Procter Gamble and McDonalds
Allowing for the 90-day total investment horizon Procter Gamble is expected to generate 1.02 times more return on investment than McDonalds. However, Procter Gamble is 1.02 times more volatile than McDonalds. It trades about 0.06 of its potential returns per unit of risk. McDonalds is currently generating about -0.14 per unit of risk. If you would invest 15,955 in Procter Gamble on January 30, 2024 and sell it today you would earn a total of 174.00 from holding Procter Gamble or generate 1.09% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Procter Gamble vs. McDonalds
Performance |
Timeline |
Procter Gamble |
McDonalds |
Procter Gamble and McDonalds Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Procter Gamble and McDonalds
The main advantage of trading using opposite Procter Gamble and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Procter Gamble position performs unexpectedly, McDonalds 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 McDonalds will offset losses from the drop in McDonalds' long position.The idea behind Procter Gamble and McDonalds 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.McDonalds vs. Chipotle Mexican Grill | McDonalds vs. Dutch Bros | McDonalds vs. Dominos Pizza | McDonalds vs. Yum Brands |
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.
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