Correlation Between Bank of America and Spectral Cap

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

Diversification Opportunities for Bank of America and Spectral Cap

-0.37

Correlation Coefficient

Bank of America  Spectral Cap

Very good diversification

The 3 months correlation between Bank and Spectral is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Spectral Cap Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spectral Cap Corp 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 Spectral Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spectral Cap Corp has no effect on the direction of Bank of America i.e., Bank of America and Spectral Cap go up and down completely randomly.

Pair Corralation between Bank of America and Spectral Cap

Assuming the 90 days trading horizon Bank of America is expected to under-perform the Spectral Cap. But the preferred stock apears to be less risky and, when comparing its historical volatility, Bank of America is 9.5 times less risky than Spectral Cap. The preferred stock trades about -0.09 of its potential returns per unit of risk. The Spectral Cap Corp is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  379.00  in Spectral Cap Corp on October 11, 2024 and sell it today you would earn a total of  105.00  from holding Spectral Cap Corp or generate 27.7% return on investment over 90 days.

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

Bank of America  vs.  Spectral Cap Corp

Bank of America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of America has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Spectral Cap Corp

Risk-Adjusted Performance

2 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spectral Cap Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile fundamental indicators, Spectral Cap displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and Spectral Cap

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

The idea behind Bank of America and Spectral Cap Corp 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.