Correlation Between McDonalds and Wingstop

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

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

Diversification Opportunities for McDonalds and Wingstop

-0.52

Correlation Coefficient

McDonalds  Wingstop

Excellent diversification

The 3 months correlation between McDonalds and Wingstop is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Wingstop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wingstop 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 Wingstop. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wingstop has no effect on the direction of McDonalds i.e., McDonalds and Wingstop go up and down completely randomly.

Pair Corralation between McDonalds and Wingstop

Considering the 90-day investment horizon McDonalds is expected to under-perform the Wingstop. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 2.95 times less risky than Wingstop. The stock trades about -0.06 of its potential returns per unit of risk. The Wingstop is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  35,988  in Wingstop on February 2, 2024 and sell it today you would earn a total of  2,410  from holding Wingstop or generate 6.7% 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.  Wingstop

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.

Wingstop

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wingstop are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Wingstop reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McDonalds and Wingstop

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

The idea behind McDonalds and Wingstop 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..