diversifiable risk of combining B of A and Desktop Metal 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 Desktop Metal, you can compare the effects of market volatilities on B of A and Desktop Metal 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 B of A with a short position of Desktop Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of B of A and Desktop Metal.
Diversification Opportunities for B of A and Desktop Metal
Pair Corralation between B of A and Desktop Metal
Considering the 90-day investment horizon Bank Of America is expected to generate 0.2 times more return on investment than Desktop Metal. However, Bank Of America is 4.96 times less risky than Desktop Metal. It trades about 0.12 of its potential returns per unit of risk. Desktop Metal is currently generating about -0.03 per unit of risk. If you would invest 3,096 in Bank Of America on December 1, 2023 and sell it today you would earn a total of 335.00 from holding Bank Of America or generate 10.82% return on investment over 90 days.
|3 Months [change]
Bank Of America vs. Desktop Metal
B of A and Desktop Metal Volatility Contrast
Pair Trading with B of A and Desktop MetalThe main advantage of trading using opposite B of A and Desktop Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if B of A position performs unexpectedly, Desktop Metal 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 Desktop Metal will offset losses from the drop in Desktop Metal's long position. The idea behind Bank Of America and Desktop Metal 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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