Correlation Between Associated British and B of A

Can any of the company-specific risk be diversified away by investing in both Associated British 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 Associated British 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 Associated British Foods and Bank Of America, you can compare the effects of market volatilities on Associated British 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 Associated British with a short position of B of A. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated British and B of A.

Diversification Opportunities for Associated British and B of A

0.05

Correlation Coefficient

Associated British B of A

Significant diversification

The 3 months correlation between Associated and B of A is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods 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 Associated British 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 Associated British Foods 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 Associated British i.e., Associated British and B of A go up and down completely randomly.

Pair Corralation between Associated British and B of A

Assuming the 90 days horizon Associated British Foods is expected to generate 1.09 times more return on investment than B of A. However, Associated British is 1.09 times more volatile than Bank Of America. It trades about -0.02 of its potential returns per unit of risk. Bank Of America is currently generating about -0.03 per unit of risk. If you would invest  3,102  in Associated British Foods on December 23, 2022 and sell it today you would lose (702.00)  from holding Associated British Foods or give up 22.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Associated British Foods  vs.  Bank Of America

Associated British Foods

Associated Performance

16 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Associated British Foods are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, Associated British showed solid returns over the last few months and may actually be approaching a breakup point.

Bank Of America

B of A Performance

0 of 100

Over the last 90 days Bank Of America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2023. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Associated British and B of A

The main advantage of trading using opposite Associated British and B of A positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Associated British 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.

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The idea behind Associated British Foods 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.

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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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.