Correlation Between Bank of America and Verizon Communications

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

Diversification Opportunities for Bank of America and Verizon Communications

0.29

Correlation Coefficient

Bank of America  Verizon Communications

Modest diversification

The 3 months correlation between Bank and Verizon is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Bank of America i.e., Bank of America and Verizon Communications go up and down completely randomly.

Pair Corralation between Bank of America and Verizon Communications

Considering the 90-day investment horizon Bank of America is expected to under-perform the Verizon Communications. In addition to that, Bank of America is 1.68 times more volatile than Verizon Communications. It trades about -0.08 of its total potential returns per unit of risk. Verizon Communications is currently generating about 0.09 per unit of volatility. If you would invest  3,948  in Verizon Communications on January 20, 2024 and sell it today you would earn a total of  65.00  from holding Verizon Communications or generate 1.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Bank of America  vs.  Verizon Communications

Bank of America

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Verizon Communications

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Verizon Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank of America and Verizon Communications

The main advantage of trading using opposite Bank of America and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.

The idea behind Bank of America and Verizon Communications 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.