Correlation Between Chevron Corp and Bank of America

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Can any of the company-specific risk be diversified away by investing in both Chevron Corp and Bank of America 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 Chevron Corp and Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chevron Corp and Bank of America, you can compare the effects of market volatilities on Chevron Corp and Bank of America 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 Chevron Corp with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron Corp and Bank of America.

Diversification Opportunities for Chevron Corp and Bank of America

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between Chevron and Bank is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America and Chevron Corp 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 Chevron Corp are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of Chevron Corp i.e., Chevron Corp and Bank of America go up and down completely randomly.

Pair Corralation between Chevron Corp and Bank of America

Considering the 90-day investment horizon Chevron Corp is expected to generate 4.67 times less return on investment than Bank of America. In addition to that, Chevron Corp is 1.14 times more volatile than Bank of America. It trades about 0.03 of its total potential returns per unit of risk. Bank of America is currently generating about 0.15 per unit of volatility. If you would invest  3,773  in Bank of America on February 21, 2024 and sell it today you would earn a total of  109.00  from holding Bank of America or generate 2.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Chevron Corp  vs.  Bank of America

 Performance 
       Timeline  
Chevron Corp 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Chevron Corp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
Bank of America 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.

Chevron Corp and Bank of America Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Chevron Corp and Bank of America

The main advantage of trading using opposite Chevron Corp and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.
The idea behind Chevron Corp and Bank of America 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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