Correlation Between Bank of America and First Trust

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

Diversification Opportunities for Bank of America and First Trust

0.87

Correlation Coefficient

Bank of America  First Trust

Very poor diversification

The 3 months correlation between Bank and First is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and First Trust Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Exchange has no effect on the direction of Bank of America i.e., Bank of America and First Trust go up and down completely randomly.

Pair Corralation between Bank of America and First Trust

Considering the 90-day investment horizon Bank of America is expected to generate 8.3 times more return on investment than First Trust. However, Bank of America is 8.3 times more volatile than First Trust Exchange Traded. It trades about 0.21 of its potential returns per unit of risk. First Trust Exchange Traded is currently generating about 0.19 per unit of risk. If you would invest  4,083  in Bank of America on May 2, 2025 and sell it today you would earn a total of  644.00  from holding Bank of America or generate 15.77% return on investment over 90 days.

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

Bank of America  vs.  First Trust Exchange Traded

Bank of America

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.

First Trust Exchange

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bank of America and First Trust

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

The idea behind Bank of America and First Trust Exchange Traded 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.