Correlation Between McDonalds and Krispy Kreme

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

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

Diversification Opportunities for McDonalds and Krispy Kreme

-0.34

Correlation Coefficient

McDonalds  Krispy Kreme

Very good diversification

The 3 months correlation between McDonalds and Krispy is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Krispy Kreme in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Krispy Kreme 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 Krispy Kreme. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Krispy Kreme has no effect on the direction of McDonalds i.e., McDonalds and Krispy Kreme go up and down completely randomly.

Pair Corralation between McDonalds and Krispy Kreme

Considering the 90-day investment horizon McDonalds is expected to generate 0.63 times more return on investment than Krispy Kreme. However, McDonalds is 1.59 times less risky than Krispy Kreme. It trades about 0.12 of its potential returns per unit of risk. Krispy Kreme is currently generating about -0.46 per unit of risk. If you would invest  26,862  in McDonalds on February 11, 2024 and sell it today you would earn a total of  638.00  from holding McDonalds or generate 2.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

McDonalds  vs.  Krispy Kreme

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 rather sound fundamental indicators, McDonalds is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Krispy Kreme

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Krispy Kreme has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Krispy Kreme is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with McDonalds and Krispy Kreme

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

The idea behind McDonalds and Krispy Kreme 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.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.