Correlation Between Bank of America and Westlake Chemical

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

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

Diversification Opportunities for Bank of America and Westlake Chemical

-0.61

Correlation Coefficient

Bank of America  Westlake Chemical

Excellent diversification

The 3 months correlation between Bank and Westlake is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Westlake Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westlake 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 Westlake Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westlake Chemical has no effect on the direction of Bank of America i.e., Bank of America and Westlake Chemical go up and down completely randomly.

Pair Corralation between Bank of America and Westlake Chemical

Assuming the 90 days trading horizon Verizon Communications is expected to generate 1.17 times more return on investment than Westlake Chemical. However, Bank of America is 1.17 times more volatile than Westlake Chemical. It trades about 0.1 of its potential returns per unit of risk. Westlake Chemical is currently generating about -0.13 per unit of risk. If you would invest  3,740  in Verizon Communications on December 29, 2024 and sell it today you would earn a total of  410.00  from holding Verizon Communications or generate 10.96% return on investment over 90 days.

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

Verizon Communications  vs.  Westlake Chemical

Verizon Communications

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Westlake Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westlake Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Bank of America and Westlake Chemical

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

The idea behind Verizon Communications and Westlake 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.