Correlation Between McDonalds and Euro Sun

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

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

Diversification Opportunities for McDonalds and Euro Sun

-0.59

Correlation Coefficient

McDonalds  Euro Sun

Excellent diversification

The 3 months correlation between McDonalds and Euro is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Euro Sun Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Euro Sun Mining 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 Euro Sun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Euro Sun Mining has no effect on the direction of McDonalds i.e., McDonalds and Euro Sun go up and down completely randomly.

Pair Corralation between McDonalds and Euro Sun

Considering the 90-day investment horizon McDonalds is expected to under-perform the Euro Sun. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 8.61 times less risky than Euro Sun. The stock trades about -0.06 of its potential returns per unit of risk. The Euro Sun Mining is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  3.20  in Euro Sun Mining on February 2, 2024 and sell it today you would earn a total of  0.80  from holding Euro Sun Mining or generate 25.0% return on investment over 90 days.

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

McDonalds  vs.  Euro Sun Mining

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.

Euro Sun Mining

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Euro Sun Mining are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Euro Sun reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McDonalds and Euro Sun

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

The idea behind McDonalds and Euro Sun Mining 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.