Correlation Between Capital Ice and Capital BofA

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

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

Diversification Opportunities for Capital Ice and Capital BofA

-0.46

Correlation Coefficient

Capital Ice  Capital BofA

Very good diversification

The 3 months correlation between Capital and Capital is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Capital Ice 7 and Capital BofA Merrill in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital BofA Merrill and Capital Ice 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 Ice 7 are associated (or correlated) with Capital BofA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital BofA Merrill has no effect on the direction of Capital Ice i.e., Capital Ice and Capital BofA go up and down completely randomly.

Pair Corralation between Capital Ice and Capital BofA

Assuming the 90 days trading horizon Capital Ice 7 is expected to generate 0.78 times more return on investment than Capital BofA. However, Capital Ice 7 is 1.28 times less risky than Capital BofA. It trades about 0.07 of its potential returns per unit of risk. Capital BofA Merrill is currently generating about 0.01 per unit of risk. If you would invest  4,116  in Capital Ice 7 on December 5, 2024 and sell it today you would earn a total of  161.00  from holding Capital Ice 7 or generate 3.91% return on investment over 90 days.

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

Capital Ice 7  vs.  Capital BofA Merrill

Capital Ice 7

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Ice 7 are ranked lower than 9 (%) 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 current stock price disturbance, may contribute to short-term losses for the investors.

Capital BofA Merrill

Risk-Adjusted Performance

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 current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Capital Ice and Capital BofA

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

The idea behind Capital Ice 7 and Capital BofA Merrill 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.