Correlation Between Bank of America and Equitable Holdings

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

Diversification Opportunities for Bank of America and Equitable Holdings

0.76

Correlation Coefficient

Bank of America  Equitable Holdings

Poor diversification

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

Pair Corralation between Bank of America and Equitable Holdings

Assuming the 90 days trading horizon Bank of America is expected to generate 0.72 times more return on investment than Equitable Holdings. However, Bank of America is 1.39 times less risky than Equitable Holdings. It trades about 0.03 of its potential returns per unit of risk. Equitable Holdings is currently generating about 0.01 per unit of risk. If you would invest  1,717  in Bank of America on October 3, 2024 and sell it today you would earn a total of  225.00  from holding Bank of America or generate 13.1% 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.  Equitable Holdings

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. In spite of latest weak performance, the Preferred Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Equitable Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equitable Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Preferred Stock's technical indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Bank of America and Equitable Holdings

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

The idea behind Bank of America and Equitable Holdings 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.