Correlation Between Bank of America and SHIN ETSU

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

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

Diversification Opportunities for Bank of America and SHIN ETSU

0.04

Correlation Coefficient

Bank of America  SHIN ETSU

Significant diversification

The 3 months correlation between Bank and SHIN is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and SHIN ETSU CHEMICAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SHIN ETSU CHEMICAL 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 SHIN ETSU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SHIN ETSU CHEMICAL has no effect on the direction of Bank of America i.e., Bank of America and SHIN ETSU go up and down completely randomly.

Pair Corralation between Bank of America and SHIN ETSU

Assuming the 90 days trading horizon Verizon Communications is expected to generate 0.53 times more return on investment than SHIN ETSU. However, Verizon Communications is 1.88 times less risky than SHIN ETSU. It trades about 0.08 of its potential returns per unit of risk. SHIN ETSU CHEMICAL is currently generating about 0.0 per unit of risk. If you would invest  3,184  in Verizon Communications on September 17, 2024 and sell it today you would earn a total of  840.00  from holding Verizon Communications or generate 26.38% 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.  SHIN ETSU CHEMICAL

Verizon Communications

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 3 (%) 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.

SHIN ETSU CHEMICAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SHIN ETSU CHEMICAL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Bank of America and SHIN ETSU

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

The idea behind Verizon Communications and SHIN ETSU CHEMICAL 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.