Correlation Between McDonalds and KB Home
Can any of the company-specific risk be diversified away by investing in both McDonalds and KB Home 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 KB Home into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and KB Home, you can compare the effects of market volatilities on McDonalds and KB Home 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 KB Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and KB Home.
Diversification Opportunities for McDonalds and KB Home
Poor diversification
The 3 months correlation between McDonalds and KBH is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and KB Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB Home 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 KB Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KB Home has no effect on the direction of McDonalds i.e., McDonalds and KB Home go up and down completely randomly.
Pair Corralation between McDonalds and KB Home
Assuming the 90 days trading horizon McDonalds is expected to generate 0.88 times more return on investment than KB Home. However, McDonalds is 1.14 times less risky than KB Home. It trades about 0.06 of its potential returns per unit of risk. KB Home is currently generating about -0.21 per unit of risk. If you would invest 586,447 in McDonalds on September 4, 2024 and sell it today you would earn a total of 9,553 from holding McDonalds or generate 1.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
McDonalds vs. KB Home
Performance |
| Timeline |
| McDonalds |
| KB Home |
McDonalds and KB Home Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and KB Home
The main advantage of trading using opposite McDonalds and KB Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, KB Home 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 KB Home will offset losses from the drop in KB Home's long position.| McDonalds vs. KB Home | McDonalds vs. Grupo Sports World | McDonalds vs. Monster Beverage Corp | McDonalds vs. FIBRA Storage |
| KB Home vs. Micron Technology | KB Home vs. UnitedHealth Group Incorporated | KB Home vs. Grupo Sports World | KB Home vs. GMxico Transportes SAB |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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