Correlation Between McDonalds and Grupo Aval

Can any of the company-specific risk be diversified away by investing in both McDonalds and Grupo Aval 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 Grupo Aval into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between McDonalds and Grupo Aval, you can compare the effects of market volatilities on McDonalds and Grupo Aval 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 Grupo Aval. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Grupo Aval.

Diversification Opportunities for McDonalds and Grupo Aval

0.48

Correlation Coefficient

McDonalds  Grupo Aval

Very weak diversification

The 3 months correlation between McDonalds and Grupo is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Grupo Aval in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Aval 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 Grupo Aval. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Aval has no effect on the direction of McDonalds i.e., McDonalds and Grupo Aval go up and down completely randomly.

Pair Corralation between McDonalds and Grupo Aval

Considering the 90-day investment horizon McDonalds is expected to under-perform the Grupo Aval. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 2.12 times less risky than Grupo Aval. The stock trades about -0.24 of its potential returns per unit of risk. The Grupo Aval is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  221.00  in Grupo Aval on January 20, 2024 and sell it today you would earn a total of  14.00  from holding Grupo Aval or generate 6.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

McDonalds  vs.  Grupo Aval

McDonalds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McDonalds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Grupo Aval

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grupo Aval has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with McDonalds and Grupo Aval

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

The idea behind McDonalds and Grupo Aval 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.

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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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.