Correlation Between Bank of America and California Resources

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

Diversification Opportunities for Bank of America and California Resources

-0.14

Correlation Coefficient

Bank of America  California Resources

Good diversification

The 3 months correlation between Bank and California is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and California Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Resources 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 California Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Resources has no effect on the direction of Bank of America i.e., Bank of America and California Resources go up and down completely randomly.

Pair Corralation between Bank of America and California Resources

If you would invest  121,269  in Bank of America on October 26, 2024 and sell it today you would earn a total of  1,244  from holding Bank of America or generate 1.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.67%
Values	Daily Returns

Bank of America  vs.  California Resources

Bank of America

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 1 (%) 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 recent stock price mess, may contribute to short-term losses for the institutional investors.

California Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days California Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, California Resources is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Bank of America and California Resources

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

The idea behind Bank of America and California Resources 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.