Correlation Between Bank of America and Charles Schwab

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

Diversification Opportunities for Bank of America and Charles Schwab

0.9

Correlation Coefficient

Bank of America  Charles Schwab

Almost no diversification

The 3 months correlation between Bank and Charles is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and The Charles Schwab in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charles Schwab 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 Charles Schwab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charles Schwab has no effect on the direction of Bank of America i.e., Bank of America and Charles Schwab go up and down completely randomly.

Pair Corralation between Bank of America and Charles Schwab

Assuming the 90 days trading horizon Bank of America is expected to generate 0.86 times more return on investment than Charles Schwab. However, Bank of America is 1.16 times less risky than Charles Schwab. It trades about -0.21 of its potential returns per unit of risk. The Charles Schwab is currently generating about -0.24 per unit of risk. If you would invest  1,888  in Bank of America on October 13, 2024 and sell it today you would lose (77.00) from holding Bank of America or give up 4.08% of portfolio value over 90 days.

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

Bank of America  vs.  The Charles Schwab

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. Even with latest uncertain performance, the Preferred Stock's fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Charles Schwab

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Charles Schwab has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Preferred Stock's forward-looking indicators remain relatively steady which may send shares a bit higher in February 2025. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

Pair Trading with Bank of America and Charles Schwab

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

The idea behind Bank of America and The Charles Schwab 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.