Correlation Between Bank of America and Metro AG

Can any of the company-specific risk be diversified away by investing in both Bank of America and Metro AG 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 Metro AG into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Verizon Communications and Metro AG, you can compare the effects of market volatilities on Bank of America and Metro AG 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 Metro AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Metro AG.

Diversification Opportunities for Bank of America and Metro AG

-0.02

Correlation Coefficient

Bank of America  Metro AG

Good diversification

The 3 months correlation between Bank and Metro is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Metro AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro AG 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 Verizon Communications are associated (or correlated) with Metro AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro AG has no effect on the direction of Bank of America i.e., Bank of America and Metro AG go up and down completely randomly.

Pair Corralation between Bank of America and Metro AG

Assuming the 90 days trading horizon Bank of America is expected to generate 1.75 times less return on investment than Metro AG. But when comparing it to its historical volatility, Verizon Communications is 2.42 times less risky than Metro AG. It trades about 0.02 of its potential returns per unit of risk. Metro AG is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  492.00  in Metro AG on September 14, 2024 and sell it today you would earn a total of  2.00  from holding Metro AG or generate 0.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Verizon Communications  vs.  Metro AG

Verizon Communications

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Bank of America is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Metro AG

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Metro AG are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, Metro AG is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bank of America and Metro AG

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

The idea behind Verizon Communications and Metro AG 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.