Correlation Between Bank of America and SPDR SP

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

Diversification Opportunities for Bank of America and SPDR SP

0.77

Correlation Coefficient

Bank of America  SPDR SP

Poor diversification

The 3 months correlation between Bank and SPDR is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and SPDR SP International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP International 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP International has no effect on the direction of Bank of America i.e., Bank of America and SPDR SP go up and down completely randomly.

Pair Corralation between Bank of America and SPDR SP

Considering the 90-day investment horizon Bank of America is expected to generate 1.78 times more return on investment than SPDR SP. However, Bank of America is 1.78 times more volatile than SPDR SP International. It trades about 0.21 of its potential returns per unit of risk. SPDR SP International is currently generating about 0.13 per unit of risk. If you would invest  2,601  in Bank of America on January 30, 2024 and sell it today you would earn a total of  1,182  from holding Bank of America or generate 45.44% return on investment over 90 days.

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

Bank of America  vs.  SPDR SP International

Bank of America

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in May 2024.

SPDR SP International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SPDR SP is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank of America and SPDR SP

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

The idea behind Bank of America and SPDR SP International 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.