Correlation Between Bank of America and JM Smucker

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

Diversification Opportunities for Bank of America and JM Smucker

-0.53

Correlation Coefficient

Bank of America  JM Smucker

Excellent diversification

The 3 months correlation between Bank and SJM is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and JM Smucker in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JM Smucker 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 JM Smucker. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JM Smucker has no effect on the direction of Bank of America i.e., Bank of America and JM Smucker go up and down completely randomly.

Pair Corralation between Bank of America and JM Smucker

Considering the 90-day investment horizon Bank of America is expected to generate 0.97 times more return on investment than JM Smucker. However, Bank of America is 1.03 times less risky than JM Smucker. It trades about -0.02 of its potential returns per unit of risk. JM Smucker is currently generating about -0.22 per unit of risk. If you would invest  3,730  in Bank of America on February 2, 2024 and sell it today you would lose (35.00) from holding Bank of America or give up 0.94% of portfolio value over 90 days.

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

Bank of America  vs.  JM Smucker

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 June 2024.

JM Smucker

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JM Smucker has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's forward-looking indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Bank of America and JM Smucker

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

The idea behind Bank of America and JM Smucker 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..