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
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between McDonalds and Bank is -0.02. 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 121.53 times less return on investment than Bank of America. But when comparing it to its historical volatility, McDonalds is 2.01 times less risky than Bank of America. It trades about 0.0 of its potential returns per unit of risk. Bank of America is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 4,262 in Bank of America on August 29, 2024 and sell it today you would earn a total of 523.50 from holding Bank of America or generate 12.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| 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. Dutch Bros | McDonalds vs. Dominos Pizza | McDonalds vs. Yum Brands |
| Bank of America vs. Citigroup | Bank of America vs. Wells Fargo | Bank of America vs. Toronto Dominion Bank | Bank of America vs. JPMorgan Chase Co |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
Other Complementary Tools
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
| AI Portfolio Architect Use AI to generate optimal portfolios and find profitable investment opportunities | |
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| Portfolio Holdings Check your current holdings and cash postion to detemine if your portfolio needs rebalancing | |
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. |