Correlation Between Bank of America and Benchmark Electronics

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

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

Diversification Opportunities for Bank of America and Benchmark Electronics

0.17

Correlation Coefficient

Bank of America  Benchmark Electronics

Average diversification

The 3 months correlation between Bank and Benchmark is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Benchmark Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Benchmark Electronics 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 Benchmark Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Benchmark Electronics has no effect on the direction of Bank of America i.e., Bank of America and Benchmark Electronics go up and down completely randomly.

Pair Corralation between Bank of America and Benchmark Electronics

Assuming the 90 days trading horizon Bank of America is expected to generate 1.6 times less return on investment than Benchmark Electronics. But when comparing it to its historical volatility, Verizon Communications is 2.16 times less risky than Benchmark Electronics. It trades about 0.1 of its potential returns per unit of risk. Benchmark Electronics is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,104  in Benchmark Electronics on October 6, 2024 and sell it today you would earn a total of  276.00  from holding Benchmark Electronics or generate 6.73% return on investment over 90 days.

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

Verizon Communications  vs.  Benchmark Electronics

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Benchmark Electronics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Benchmark Electronics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Benchmark Electronics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Bank of America and Benchmark Electronics

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

The idea behind Verizon Communications and Benchmark Electronics 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.