Correlation Between Capital BofA and Capital Ice

Can any of the company-specific risk be diversified away by investing in both Capital BofA and Capital Ice 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 Capital BofA and Capital Ice into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Capital BofA Merrill and Capital Ice 7, you can compare the effects of market volatilities on Capital BofA and Capital Ice 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 Capital BofA with a short position of Capital Ice. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital BofA and Capital Ice.

Diversification Opportunities for Capital BofA and Capital Ice

0.45

Correlation Coefficient

Capital BofA  Capital Ice

Very weak diversification

The 3 months correlation between Capital and Capital is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Capital BofA Merrill and Capital Ice 7 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Ice 7 and Capital BofA 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 Capital BofA Merrill are associated (or correlated) with Capital Ice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Ice 7 has no effect on the direction of Capital BofA i.e., Capital BofA and Capital Ice go up and down completely randomly.

Pair Corralation between Capital BofA and Capital Ice

Assuming the 90 days trading horizon Capital BofA Merrill is expected to under-perform the Capital Ice. In addition to that, Capital BofA is 1.53 times more volatile than Capital Ice 7. It trades about -0.05 of its total potential returns per unit of risk. Capital Ice 7 is currently generating about 0.04 per unit of volatility. If you would invest  4,147  in Capital Ice 7 on September 16, 2024 and sell it today you would earn a total of  45.00  from holding Capital Ice 7 or generate 1.09% return on investment over 90 days.

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

Capital BofA Merrill  vs.  Capital Ice 7

Capital BofA Merrill

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital BofA Merrill has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Capital BofA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Capital Ice 7

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Ice 7 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Capital Ice is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Capital BofA and Capital Ice

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

The idea behind Capital BofA Merrill and Capital Ice 7 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.