Correlation Between McDonalds and BFIT
Can any of the company-specific risk be diversified away by investing in both McDonalds and BFIT 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 BFIT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and BFIT, you can compare the effects of market volatilities on McDonalds and BFIT 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 BFIT. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and BFIT.
Diversification Opportunities for McDonalds and BFIT
Excellent diversification
The 3 months correlation between McDonalds and BFIT is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and BFIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BFIT 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 BFIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BFIT has no effect on the direction of McDonalds i.e., McDonalds and BFIT go up and down completely randomly.
Pair Corralation between McDonalds and BFIT
Considering the 90-day investment horizon McDonalds is expected to generate 1.8 times less return on investment than BFIT. But when comparing it to its historical volatility, McDonalds is 1.15 times less risky than BFIT. It trades about 0.02 of its potential returns per unit of risk. BFIT is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 2,155 in BFIT on August 23, 2024 and sell it today you would earn a total of 130.00 from holding BFIT or generate 6.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 32.26% |
| Values | Daily Returns |
McDonalds vs. BFIT
Performance |
| Timeline |
| McDonalds |
| BFIT |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
McDonalds and BFIT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and BFIT
The main advantage of trading using opposite McDonalds and BFIT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, BFIT 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 BFIT will offset losses from the drop in BFIT's long position.| McDonalds vs. Chipotle Mexican Grill | McDonalds vs. Dutch Bros | McDonalds vs. Dominos Pizza | McDonalds vs. Yum Brands |
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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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