Correlation Between McDonalds and Japan Exchange

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

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

Diversification Opportunities for McDonalds and Japan Exchange

-0.24

Correlation Coefficient

McDonalds  Japan Exchange

Very good diversification

The 3 months correlation between McDonalds and Japan is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Japan Exchange Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Exchange Group 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 Japan Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Exchange Group has no effect on the direction of McDonalds i.e., McDonalds and Japan Exchange go up and down completely randomly.

Pair Corralation between McDonalds and Japan Exchange

Considering the 90-day investment horizon McDonalds is expected to generate 0.34 times more return on investment than Japan Exchange. However, McDonalds is 2.96 times less risky than Japan Exchange. It trades about -0.06 of its potential returns per unit of risk. Japan Exchange Group is currently generating about -0.25 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	Insignificant
Accuracy	100.0%
Values	Daily Returns

McDonalds  vs.  Japan Exchange Group

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.

Japan Exchange Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Exchange Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Japan Exchange is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with McDonalds and Japan Exchange

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

The idea behind McDonalds and Japan Exchange Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.