Correlation Between Bank of America and Alkermes Plc

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Can any of the company-specific risk be diversified away by investing in both Bank of America and Alkermes Plc 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 Alkermes Plc 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 Alkermes Plc, you can compare the effects of market volatilities on Bank of America and Alkermes Plc 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 Alkermes Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Alkermes Plc.

Diversification Opportunities for Bank of America and Alkermes Plc

0.03
  Correlation Coefficient

Significant diversification

The 3 months correlation between Bank and Alkermes is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Bank Of America and Alkermes Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alkermes Plc 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 Alkermes Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alkermes Plc has no effect on the direction of Bank of America i.e., Bank of America and Alkermes Plc go up and down completely randomly.

Pair Corralation between Bank of America and Alkermes Plc

Considering the 90-day investment horizon Bank Of America is expected to generate 0.58 times more return on investment than Alkermes Plc. However, Bank Of America is 1.71 times less risky than Alkermes Plc. It trades about 0.14 of its potential returns per unit of risk. Alkermes Plc is currently generating about -0.01 per unit of risk. If you would invest  2,824  in Bank Of America on December 29, 2023 and sell it today you would earn a total of  968.00  from holding Bank Of America or generate 34.28% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Bank Of America  vs.  Alkermes Plc

 Performance 
       Timeline  
Bank Of America 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Bank Of America are ranked lower than 13 (%) 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.
Alkermes Plc 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Alkermes Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward-looking signals, Alkermes Plc is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Bank of America and Alkermes Plc Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bank of America and Alkermes Plc

The main advantage of trading using opposite Bank of America and Alkermes Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Alkermes Plc 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 Alkermes Plc will offset losses from the drop in Alkermes Plc's long position.
The idea behind Bank Of America and Alkermes Plc 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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