Correlation Between Bank of America and SPDR Portfolio

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

Diversification Opportunities for Bank of America and SPDR Portfolio

0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between Bank and SPDR is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Bank Of America and SPDR Portfolio SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio SP 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 SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio SP has no effect on the direction of Bank of America i.e., Bank of America and SPDR Portfolio go up and down completely randomly.

Pair Corralation between Bank of America and SPDR Portfolio

Considering the 90-day investment horizon Bank Of America is expected to generate 1.15 times more return on investment than SPDR Portfolio. However, Bank of America is 1.15 times more volatile than SPDR Portfolio SP. It trades about 0.47 of its potential returns per unit of risk. SPDR Portfolio SP is currently generating about 0.13 per unit of risk. If you would invest  3,404  in Bank Of America on December 29, 2023 and sell it today you would earn a total of  388.00  from holding Bank Of America or generate 11.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Bank Of America  vs.  SPDR Portfolio SP

 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 uncertain basic indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.
SPDR Portfolio SP 

Risk-Adjusted Performance

15 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio SP are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, SPDR Portfolio may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Bank of America and SPDR Portfolio Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bank of America and SPDR Portfolio

The main advantage of trading using opposite Bank of America and SPDR Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, SPDR Portfolio 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 SPDR Portfolio will offset losses from the drop in SPDR Portfolio's long position.
The idea behind Bank Of America and SPDR Portfolio SP 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.

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