Correlation Between Bank of America and Grupo Aval

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

Diversification Opportunities for Bank of America and Grupo Aval

0.76

Correlation Coefficient

Bank of America  Grupo Aval

Poor diversification

The 3 months correlation between Bank and Grupo is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Grupo Aval in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Aval 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 Grupo Aval. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Aval has no effect on the direction of Bank of America i.e., Bank of America and Grupo Aval go up and down completely randomly.

Pair Corralation between Bank of America and Grupo Aval

Assuming the 90 days trading horizon Bank of America is expected to generate 18.04 times less return on investment than Grupo Aval. But when comparing it to its historical volatility, Bank of America is 4.92 times less risky than Grupo Aval. It trades about 0.06 of its potential returns per unit of risk. Grupo Aval is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  199.00  in Grupo Aval on December 28, 2024 and sell it today you would earn a total of  81.00  from holding Grupo Aval or generate 40.7% return on investment over 90 days.

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

Bank of America  vs.  Grupo Aval

Bank of America

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Bank of America is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Grupo Aval

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Aval are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Grupo Aval disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and Grupo Aval

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

The idea behind Bank of America and Grupo Aval 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.