Correlation Between B of A and Desktop Metal

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Can any of the company-specific risk be diversified away by investing in both B of A and Desktop Metal 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 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

-0.38
  Correlation Coefficient

Very good diversification

The 3 months correlation between BAC and Desktop is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Bank Of America and Desktop Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Desktop Metal and B of A 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 Desktop Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Desktop Metal has no effect on the direction of B of A i.e., B of A and Desktop Metal go up and down completely randomly.

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.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Bank Of America  vs.  Desktop Metal

 Performance 
       Timeline  
Bank Of America 

Risk-Adjusted Performance

9 of 100

 
Low
 
High
OK
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. In spite of rather weak basic indicators, B of A may actually be approaching a critical reversion point that can send shares even higher in March 2024.
Desktop Metal 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Desktop Metal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

B of A and Desktop Metal Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with B of A and Desktop Metal

The 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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