Correlation Between Flanigans Enterprises and McDonalds

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

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

Diversification Opportunities for Flanigans Enterprises and McDonalds

0.41

Correlation Coefficient

Flanigans Enterprises  McDonalds

Very weak diversification

The 3 months correlation between Flanigans and McDonalds is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Flanigans Enterprises and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Flanigans Enterprises 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 Flanigans Enterprises 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 Flanigans Enterprises i.e., Flanigans Enterprises and McDonalds go up and down completely randomly.

Pair Corralation between Flanigans Enterprises and McDonalds

Considering the 90-day investment horizon Flanigans Enterprises is expected to under-perform the McDonalds. In addition to that, Flanigans Enterprises is 1.68 times more volatile than McDonalds. It trades about -0.04 of its total potential returns per unit of risk. McDonalds is currently generating about 0.01 per unit of volatility. If you would invest  29,476  in McDonalds on September 13, 2024 and sell it today you would earn a total of  134.00  from holding McDonalds or generate 0.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	87.3%
Values	Daily Returns

Flanigans Enterprises  vs.  McDonalds

Flanigans Enterprises

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Flanigans Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Flanigans Enterprises is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

McDonalds

Risk-Adjusted Performance

0 of 100

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.

Pair Trading with Flanigans Enterprises and McDonalds

The main advantage of trading using opposite Flanigans Enterprises and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Flanigans Enterprises 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 Flanigans Enterprises 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.

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.