Correlation Between Bank of America and Bank Ozk

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

Diversification Opportunities for Bank of America and Bank Ozk

0.44

Correlation Coefficient

Bank of America  Bank Ozk

Very weak diversification

The 3 months correlation between Bank and Bank is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Bank Ozk Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Ozk Preferred 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 Bank Ozk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Ozk Preferred has no effect on the direction of Bank of America i.e., Bank of America and Bank Ozk go up and down completely randomly.

Pair Corralation between Bank of America and Bank Ozk

Assuming the 90 days trading horizon Bank of America is expected to generate 2.96 times less return on investment than Bank Ozk. But when comparing it to its historical volatility, Bank of America is 1.42 times less risky than Bank Ozk. It trades about 0.06 of its potential returns per unit of risk. Bank Ozk Preferred is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,586  in Bank Ozk Preferred on December 25, 2024 and sell it today you would earn a total of  127.00  from holding Bank Ozk Preferred or generate 8.01% return on investment over 90 days.

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

Bank of America  vs.  Bank Ozk Preferred

Bank of America

Risk-Adjusted Performance

Insignificant

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. In spite of very healthy fundamental indicators, Bank of America is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Bank Ozk Preferred

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Ozk Preferred are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Bank Ozk may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Bank of America and Bank Ozk

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

The idea behind Bank of America and Bank Ozk Preferred 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.