Correlation Between McDonalds and Bank of America
Can any of the company-specific risk be diversified away by investing in both McDonalds and Bank of America 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 Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Bank of America, you can compare the effects of market volatilities on McDonalds and Bank of America 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 Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Bank of America.
Diversification Opportunities for McDonalds and Bank of America
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between McDonalds and Bank is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America 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 Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of McDonalds i.e., McDonalds and Bank of America go up and down completely randomly.
Pair Corralation between McDonalds and Bank of America
Considering the 90-day investment horizon McDonalds is expected to generate 0.74 times more return on investment than Bank of America. However, McDonalds is 1.35 times less risky than Bank of America. It trades about -0.11 of its potential returns per unit of risk. Bank of America is currently generating about -0.12 per unit of risk. If you would invest 29,478 in McDonalds on November 4, 2024 and sell it today you would lose (608.00) from holding McDonalds or give up 2.06% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
McDonalds vs. Bank of America
Performance |
| Timeline |
| McDonalds |
| Bank of America |
McDonalds and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Bank of America
The main advantage of trading using opposite McDonalds and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.| McDonalds vs. Chipotle Mexican Grill | McDonalds vs. Dominos Pizza Common | McDonalds vs. Yum Brands | McDonalds vs. The Wendys Co |
| Bank of America vs. Bank of America | Bank of America vs. Bank of America | Bank of America vs. JPMorgan Chase Co | Bank of America vs. Bank of America |
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 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..
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