Correlation Between Capital BofA and Capital Tip

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

Diversification Opportunities for Capital BofA and Capital Tip

-0.56

Correlation Coefficient

Capital BofA  Capital Tip

Excellent diversification

The 3 months correlation between Capital and Capital is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Capital BofA Merrill and Capital Tip Customized in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Tip Customized 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 Tip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Tip Customized has no effect on the direction of Capital BofA i.e., Capital BofA and Capital Tip go up and down completely randomly.

Pair Corralation between Capital BofA and Capital Tip

Assuming the 90 days trading horizon Capital BofA Merrill is expected to under-perform the Capital Tip. But the etf apears to be less risky and, when comparing its historical volatility, Capital BofA Merrill is 1.52 times less risky than Capital Tip. The etf trades about -0.02 of its potential returns per unit of risk. The Capital Tip Customized is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,046  in Capital Tip Customized on September 12, 2024 and sell it today you would earn a total of  124.00  from holding Capital Tip Customized or generate 6.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

Capital BofA Merrill  vs.  Capital Tip Customized

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 Tip Customized

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Tip Customized are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Capital Tip may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Capital BofA and Capital Tip

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

The idea behind Capital BofA Merrill and Capital Tip Customized 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.