Correlation Between Bank of America and Bank of NT
Can any of the company-specific risk be diversified away by investing in both Bank of America and Bank of NT 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 Bank of NT 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 Bank of NT, you can compare the effects of market volatilities on Bank of America and Bank of NT 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 Bank of NT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Bank of NT.
Diversification Opportunities for Bank of America and Bank of NT
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and Bank is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Bank of NT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of NT 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 Bank of NT. 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 NT has no effect on the direction of Bank of America i.e., Bank of America and Bank of NT go up and down completely randomly.
Pair Corralation between Bank of America and Bank of NT
Considering the 90-day investment horizon Bank of America is expected to generate 0.98 times more return on investment than Bank of NT. However, Bank of America is 1.02 times less risky than Bank of NT. It trades about 0.13 of its potential returns per unit of risk. Bank of NT is currently generating about 0.0 per unit of risk. If you would invest 3,232 in Bank of America on January 20, 2024 and sell it today you would earn a total of 345.00 from holding Bank of America or generate 10.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.41% |
| Values | Daily Returns |
Bank of America vs. Bank of NT
Performance |
| Timeline |
| Bank of America |
| Bank of NT |
Bank of America and Bank of NT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Bank of NT
The main advantage of trading using opposite Bank of America and Bank of NT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Bank of NT 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 NT will offset losses from the drop in Bank of NT's long position.The idea behind Bank of America and Bank of NT 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.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 the Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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