Correlation Between Bank of America and SoundHound

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

Diversification Opportunities for Bank of America and SoundHound

0.13

Correlation Coefficient

Bank of America  SoundHound

Average diversification

The 3 months correlation between Bank and SoundHound is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and SoundHound AI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SoundHound AI 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 SoundHound. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SoundHound AI has no effect on the direction of Bank of America i.e., Bank of America and SoundHound go up and down completely randomly.

Pair Corralation between Bank of America and SoundHound

Assuming the 90 days trading horizon Bank of America is expected to generate 21.08 times less return on investment than SoundHound. But when comparing it to its historical volatility, Bank of America is 14.94 times less risky than SoundHound. It trades about 0.07 of its potential returns per unit of risk. SoundHound AI is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  100.00  in SoundHound AI on October 9, 2024 and sell it today you would earn a total of  1,889  from holding SoundHound AI or generate 1889.0% return on investment over 90 days.

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

Bank of America  vs.  SoundHound AI

Bank of America

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Bank of America is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SoundHound AI

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SoundHound AI are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, SoundHound displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and SoundHound

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

The idea behind Bank of America and SoundHound AI 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.

Check out your portfolio center.

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.