Correlation Between Bank of America and Digital Ally

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

Diversification Opportunities for Bank of America and Digital Ally

-0.65

Correlation Coefficient

Bank of America  Digital Ally

Excellent diversification

The 3 months correlation between Bank and Digital is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Digital Ally in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Ally 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 Digital Ally. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Ally has no effect on the direction of Bank of America i.e., Bank of America and Digital Ally go up and down completely randomly.

Pair Corralation between Bank of America and Digital Ally

Considering the 90-day investment horizon Bank of America is expected to generate 0.08 times more return on investment than Digital Ally. However, Bank of America is 13.15 times less risky than Digital Ally. It trades about 0.15 of its potential returns per unit of risk. Digital Ally is currently generating about -0.15 per unit of risk. If you would invest  4,088  in Bank of America on May 5, 2025 and sell it today you would earn a total of  478.00  from holding Bank of America or generate 11.69% return on investment over 90 days.

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

Bank of America  vs.  Digital Ally

Bank of America

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Digital Ally

Risk-Adjusted Performance

Very Weak

Over the last 90 days Digital Ally has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in September 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Bank of America and Digital Ally

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

The idea behind Bank of America and Digital Ally 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.