Correlation Between Bank of America and Regions Financial

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

Diversification Opportunities for Bank of America and Regions Financial

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Bank and Regions is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bank Of America and Regions Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regions Financial and Bank of America 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 Bank Of America are associated (or correlated) with Regions Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regions Financial has no effect on the direction of Bank of America i.e., Bank of America and Regions Financial go up and down completely randomly.

Pair Corralation between Bank of America and Regions Financial

Considering the 90-day investment horizon Bank Of America is expected to generate 0.81 times more return on investment than Regions Financial. However, Bank Of America is 1.23 times less risky than Regions Financial. It trades about 0.23 of its potential returns per unit of risk. Regions Financial is currently generating about 0.12 per unit of risk. If you would invest  3,337  in Bank Of America on December 29, 2023 and sell it today you would earn a total of  444.00  from holding Bank Of America or generate 13.31% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Bank Of America  vs.  Regions Financial

 Performance 
       Timeline  
Bank Of America 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Bank Of America are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.
Regions Financial 

Risk-Adjusted Performance

6 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Regions Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Regions Financial may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Bank of America and Regions Financial Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bank of America and Regions Financial

The main advantage of trading using opposite Bank of America and Regions Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Regions Financial 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 Regions Financial will offset losses from the drop in Regions Financial's long position.
The idea behind Bank Of America and Regions Financial 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 the Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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