Correlation Between Reading International and Bank of America

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

Diversification Opportunities for Reading International and Bank of America

  Correlation Coefficient

Very good diversification

The 3 months correlation between Reading and Bank is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Reading International B 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 Reading International 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 Reading International B 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 Reading International i.e., Reading International and Bank of America go up and down completely randomly.

Pair Corralation between Reading International and Bank of America

Given the investment horizon of 90 days Reading International B is expected to generate 2.76 times more return on investment than Bank of America. However, Reading International is 2.76 times more volatile than Bank of America. It trades about 0.17 of its potential returns per unit of risk. Bank of America is currently generating about 0.26 per unit of risk. If you would invest  1,225  in Reading International B on April 22, 2024 and sell it today you would earn a total of  175.00  from holding Reading International B or generate 14.29% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
ValuesDaily Returns

Reading International B  vs.  Bank of America

Reading International 

Risk-Adjusted Performance

0 of 100

Very Weak
Over the last 90 days Reading International B has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, Reading International 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

13 of 100

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

Reading International and Bank of America Volatility Contrast

   Predicted Return Density   

Pair Trading with Reading International and Bank of America

The main advantage of trading using opposite Reading International and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reading International 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 Reading International B 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 Commodity Directory module to find actively traded commodities issued by global exchanges.

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