Correlation Between B of A and SPDR Portfolio

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Can any of the company-specific risk be diversified away by investing in both B of A 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 B of A 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 B of A 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 B of A with a short position of SPDR Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of B of A and SPDR Portfolio.

Diversification Opportunities for B of A and SPDR Portfolio

0.36
  Correlation Coefficient

Weak diversification

The 3 months correlation between B of A and SPDR Portfolio is 0.36. 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 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 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 B of A i.e., B of A and SPDR Portfolio go up and down completely randomly.

Pair Corralation between B of A and SPDR Portfolio

Considering the 90-day investment horizon Bank Of America is expected to under-perform the SPDR Portfolio. In addition to that, B of A is 1.06 times more volatile than SPDR Portfolio SP. It trades about -0.05 of its total potential returns per unit of risk. SPDR Portfolio SP is currently generating about -0.03 per unit of volatility. If you would invest  6,478  in SPDR Portfolio SP on November 2, 2022 and sell it today you would lose (1,191)  from holding SPDR Portfolio SP or give up 18.39% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Bank Of America  vs.  SPDR Portfolio SP

 Performance (%) 
       Timeline  
Bank Of America 
B of A Performance
0 of 100
Over the last 90 days Bank Of America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, B of A is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

B of A Price Channel

SPDR Portfolio SP 
SPDR Portfolio Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio SP are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, SPDR Portfolio may actually be approaching a critical reversion point that can send shares even higher in March 2023.

SPDR Portfolio Price Channel

B of A and SPDR Portfolio Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with B of A and SPDR Portfolio

The main advantage of trading using opposite B of A and SPDR Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if B of A 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.
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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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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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