Correlation Between Bank of America and Santen Pharmaceutical

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

Diversification Opportunities for Bank of America and Santen Pharmaceutical

-0.59

Correlation Coefficient

Bank of America  Santen Pharmaceutical

Excellent diversification

The 3 months correlation between Bank and Santen is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Santen Pharmaceutical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Santen Pharmaceutical 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 Santen Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Santen Pharmaceutical has no effect on the direction of Bank of America i.e., Bank of America and Santen Pharmaceutical go up and down completely randomly.

Pair Corralation between Bank of America and Santen Pharmaceutical

Considering the 90-day investment horizon Bank of America is expected to generate 1.76 times less return on investment than Santen Pharmaceutical. But when comparing it to its historical volatility, Bank of America is 1.22 times less risky than Santen Pharmaceutical. It trades about 0.01 of its potential returns per unit of risk. Santen Pharmaceutical Co is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  937.00  in Santen Pharmaceutical Co on January 31, 2024 and sell it today you would earn a total of  2.00  from holding Santen Pharmaceutical Co or generate 0.21% return on investment over 90 days.

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

Bank of America  vs.  Santen Pharmaceutical Co

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 May 2024.

Santen Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Santen Pharmaceutical Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Santen Pharmaceutical 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 Santen Pharmaceutical

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

The idea behind Bank of America and Santen Pharmaceutical Co 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.