Correlation Between Bank of America and News

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

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

Diversification Opportunities for Bank of America and News

0.26

Correlation Coefficient

Bank of America  News

Modest diversification

The 3 months correlation between Bank and News is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and News Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on News 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 News. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of News has no effect on the direction of Bank of America i.e., Bank of America and News go up and down completely randomly.

Pair Corralation between Bank of America and News

Assuming the 90 days trading horizon Verizon Communications is expected to generate 1.59 times more return on investment than News. However, Bank of America is 1.59 times more volatile than News Corporation. It trades about 0.01 of its potential returns per unit of risk. News Corporation is currently generating about 0.0 per unit of risk. If you would invest  3,771  in Verizon Communications on October 22, 2024 and sell it today you would earn a total of  1.00  from holding Verizon Communications or generate 0.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.12%
Values	Daily Returns

Verizon Communications  vs.  News Corp.

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.

News

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in News Corporation are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, News reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and News

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

The idea behind Verizon Communications and News Corporation 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.