Correlation Between McDonalds and American Airlines
Can any of the company-specific risk be diversified away by investing in both McDonalds and American Airlines 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 American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and American Airlines Group, you can compare the effects of market volatilities on McDonalds and American Airlines 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 American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and American Airlines.
Diversification Opportunities for McDonalds and American Airlines
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between McDonalds and American is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of McDonalds i.e., McDonalds and American Airlines go up and down completely randomly.
Pair Corralation between McDonalds and American Airlines
Assuming the 90 days trading horizon McDonalds is expected to under-perform the American Airlines. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 4.37 times less risky than American Airlines. The stock trades about -0.75 of its potential returns per unit of risk. The American Airlines Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 10,713 in American Airlines Group on October 25, 2024 and sell it today you would earn a total of 295.00 from holding American Airlines Group or generate 2.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 94.74% |
| Values | Daily Returns |
McDonalds vs. American Airlines Group
Performance |
| Timeline |
| McDonalds |
| American Airlines |
McDonalds and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and American Airlines
The main advantage of trading using opposite McDonalds and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.| McDonalds vs. Truist Financial | McDonalds vs. Unity Software | McDonalds vs. Nordon Indstrias Metalrgicas | McDonalds vs. Paycom Software |
| American Airlines vs. GP Investments | American Airlines vs. Ares Management | American Airlines vs. Public Storage | American Airlines vs. Waste Management |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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