Can any of the company-specific risk be diversified away by investing in both Bank of America and Bank of America 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 Bank of America 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 Bank of America, you can compare the effects of market volatilities on Bank of America and Bank of America 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 Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Bank of America.
Diversification Opportunities for Bank of America and Bank of America
The 3 months correlation between Bank and Bank is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America 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 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 Bank of America. 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 Bank of America i.e., Bank of America and Bank of America go up and down completely randomly.
Pair Corralation between Bank of America and Bank of America
Assuming the 90 days trading horizon Bank of America is expected to generate 12.31 times less return on investment than Bank of America. But when comparing it to its historical volatility, Bank of America is 1.0 times less risky than Bank of America. It trades about 0.01 of its potential returns per unit of risk. Bank of America is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 2,140 in Bank of America on March 6, 2024 and sell it today you would earn a total of 62.00 from holding Bank of America or generate 2.9% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Bank of America is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, Bank of America is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.