Correlation Between McDonalds Corp and B of A

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Can any of the company-specific risk be diversified away by investing in both McDonalds Corp and B of A 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 Corp and B of A into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds Corp and Bank Of America, you can compare the effects of market volatilities on McDonalds Corp and B of A 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 Corp with a short position of B of A. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds Corp and B of A.

Diversification Opportunities for McDonalds Corp and B of A

-0.09
  Correlation Coefficient

Good diversification

The 3 months correlation between McDonalds and B of A is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds Corp 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 Corp 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 Corp are associated (or correlated) with B of A. 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 Corp i.e., McDonalds Corp and B of A go up and down completely randomly.

Pair Corralation between McDonalds Corp and B of A

Considering the 90-day investment horizon McDonalds Corp is expected to generate 1.97 times less return on investment than B of A. But when comparing it to its historical volatility, McDonalds Corp is 1.79 times less risky than B of A. It trades about 0.05 of its potential returns per unit of risk. Bank Of America is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,361  in Bank Of America on May 13, 2022 and sell it today you would earn a total of  1,240  from holding Bank Of America or generate 52.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

McDonalds Corp  vs.  Bank Of America

 Performance (%) 
       Timeline  
McDonalds Corp 
McDonalds Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, McDonalds Corp may actually be approaching a critical reversion point that can send shares even higher in September 2022.

McDonalds Price Channel

Bank Of America 
B of A Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Bank Of America are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, B of A is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

B of A Price Channel

McDonalds Corp and B of A Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with McDonalds Corp and B of A

The main advantage of trading using opposite McDonalds Corp and B of A positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds Corp position performs unexpectedly, B of A 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 B of A will offset losses from the drop in B of A's long position.

McDonalds Corp

Pair trading matchups for McDonalds Corp

The idea behind McDonalds Corp and Bank Of America pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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