Correlation Between Bank of America and PNC Financial

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

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

Diversification Opportunities for Bank of America and PNC Financial

0.39

Correlation Coefficient

Bank of America  PNC Financial

Weak diversification

The 3 months correlation between Bank and PNC is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and The PNC Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PNC Financial 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 PNC Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PNC Financial has no effect on the direction of Bank of America i.e., Bank of America and PNC Financial go up and down completely randomly.

Pair Corralation between Bank of America and PNC Financial

Assuming the 90 days trading horizon Bank of America is expected to generate 2.01 times less return on investment than PNC Financial. But when comparing it to its historical volatility, Verizon Communications is 1.24 times less risky than PNC Financial. It trades about 0.05 of its potential returns per unit of risk. The PNC Financial is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  13,328  in The PNC Financial on October 6, 2024 and sell it today you would earn a total of  5,072  from holding The PNC Financial or generate 38.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Verizon Communications  vs.  The PNC Financial

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.

PNC Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The PNC Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PNC Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and PNC Financial

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

The idea behind Verizon Communications and The PNC Financial 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.