Correlation Between Bank of America and WisdomTree Inflation

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

Diversification Opportunities for Bank of America and WisdomTree Inflation

0.5

Correlation Coefficient

Bank of America  WisdomTree Inflation

Very weak diversification

The 3 months correlation between Bank and WisdomTree is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and WisdomTree Inflation Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Inflation Plus 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 WisdomTree Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Inflation Plus has no effect on the direction of Bank of America i.e., Bank of America and WisdomTree Inflation go up and down completely randomly.

Pair Corralation between Bank of America and WisdomTree Inflation

Considering the 90-day investment horizon Bank of America is expected to generate 1.92 times more return on investment than WisdomTree Inflation. However, Bank of America is 1.92 times more volatile than WisdomTree Inflation Plus. It trades about 0.07 of its potential returns per unit of risk. WisdomTree Inflation Plus is currently generating about 0.01 per unit of risk. If you would invest  4,451  in Bank of America on May 19, 2025 and sell it today you would earn a total of  243.00  from holding Bank of America or generate 5.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	66.67%
Values	Daily Returns

Bank of America  vs.  WisdomTree Inflation Plus

Bank of America

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Bank of America is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

WisdomTree Inflation Plus

Risk-Adjusted Performance

Weakest

Over the last 90 days WisdomTree Inflation Plus has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, WisdomTree Inflation is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Bank of America and WisdomTree Inflation

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

The idea behind Bank of America and WisdomTree Inflation Plus 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 Transaction History module to view history of all your transactions and understand their impact on performance.