Correlation Between Bank of America and EMCOR

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

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

Diversification Opportunities for Bank of America and EMCOR

0.36

Correlation Coefficient

Bank of America  EMCOR

Weak diversification

The 3 months correlation between Bank and EMCOR is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and EMCOR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCOR Group 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 EMCOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCOR Group has no effect on the direction of Bank of America i.e., Bank of America and EMCOR go up and down completely randomly.

Pair Corralation between Bank of America and EMCOR

Assuming the 90 days trading horizon Bank of America is expected to generate 5.44 times less return on investment than EMCOR. But when comparing it to its historical volatility, Verizon Communications is 1.81 times less risky than EMCOR. It trades about 0.05 of its potential returns per unit of risk. EMCOR Group is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  19,641  in EMCOR Group on October 3, 2024 and sell it today you would earn a total of  24,799  from holding EMCOR Group or generate 126.26% return on investment over 90 days.

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

Verizon Communications  vs.  EMCOR Group

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

EMCOR Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EMCOR Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, EMCOR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and EMCOR

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

The idea behind Verizon Communications and EMCOR Group 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.