Correlation Between Bank of America and VERIZON

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

Diversification Opportunities for Bank of America and VERIZON

-0.28

Correlation Coefficient

Bank of America  VERIZON

Very good diversification

The 3 months correlation between Bank and VERIZON is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and VERIZON MUNICATIONS INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VERIZON MUNICATIONS INC 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 VERIZON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VERIZON MUNICATIONS INC has no effect on the direction of Bank of America i.e., Bank of America and VERIZON go up and down completely randomly.

Pair Corralation between Bank of America and VERIZON

Considering the 90-day investment horizon Bank of America is expected to generate 1.15 times more return on investment than VERIZON. However, Bank of America is 1.15 times more volatile than VERIZON MUNICATIONS INC. It trades about 0.06 of its potential returns per unit of risk. VERIZON MUNICATIONS INC is currently generating about 0.05 per unit of risk. If you would invest  3,780  in Bank of America on August 7, 2024 and sell it today you would earn a total of  353.00  from holding Bank of America or generate 9.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.55%
Values	Daily Returns

Bank of America  vs.  VERIZON MUNICATIONS INC

Bank of America

Risk-Adjusted Performance

11 of 100

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 unsteady basic indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in December 2024.

VERIZON MUNICATIONS INC

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in VERIZON MUNICATIONS INC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, VERIZON is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank of America and VERIZON

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

The idea behind Bank of America and VERIZON MUNICATIONS INC 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.