Correlation Between Bank of America and Dollar General

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

Diversification Opportunities for Bank of America and Dollar General

-0.81

Correlation Coefficient

Bank of America  Dollar General

Pay attention - limited upside

The 3 months correlation between Bank and Dollar is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Dollar General in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar General 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 Dollar General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dollar General has no effect on the direction of Bank of America i.e., Bank of America and Dollar General go up and down completely randomly.

Pair Corralation between Bank of America and Dollar General

Assuming the 90 days trading horizon Bank of America is expected to generate 0.24 times more return on investment than Dollar General. However, Bank of America is 4.15 times less risky than Dollar General. It trades about 0.13 of its potential returns per unit of risk. Dollar General is currently generating about -0.03 per unit of risk. If you would invest  1,954  in Bank of America on July 2, 2024 and sell it today you would earn a total of  428.00  from holding Bank of America or generate 21.9% return on investment over 90 days.

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

Bank of America  vs.  Dollar General

Bank of America

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Dollar General

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dollar General has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in October 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Bank of America and Dollar General

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

The idea behind Bank of America and Dollar General 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.