Correlation Between Bank of America and ABN AMRO

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

Diversification Opportunities for Bank of America and ABN AMRO

0.91

Correlation Coefficient

Bank of America  ABN AMRO

Almost no diversification

The 3 months correlation between Bank and ABN is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and ABN AMRO Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABN AMRO Bank 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 ABN AMRO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABN AMRO Bank has no effect on the direction of Bank of America i.e., Bank of America and ABN AMRO go up and down completely randomly.

Pair Corralation between Bank of America and ABN AMRO

Assuming the 90 days trading horizon Bank of America is expected to generate 0.4 times more return on investment than ABN AMRO. However, Bank of America is 2.47 times less risky than ABN AMRO. It trades about -0.17 of its potential returns per unit of risk. ABN AMRO Bank is currently generating about -0.15 per unit of risk. If you would invest  2,180  in Bank of America on September 12, 2024 and sell it today you would lose (42.00) from holding Bank of America or give up 1.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Bank of America  vs.  ABN AMRO Bank

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 comparatively stable fundamental indicators, Bank of America is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

ABN AMRO Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABN AMRO Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Bank of America and ABN AMRO

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

The idea behind Bank of America and ABN AMRO Bank 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.