Correlation Between Bank of America and UNITED RENTALS
Can any of the company-specific risk be diversified away by investing in both Bank of America and UNITED RENTALS 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 UNITED RENTALS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and UNITED RENTALS, you can compare the effects of market volatilities on Bank of America and UNITED RENTALS 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 UNITED RENTALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and UNITED RENTALS.
Diversification Opportunities for Bank of America and UNITED RENTALS
-0.65 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Bank and UNITED is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and UNITED RENTALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITED RENTALS 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 UNITED RENTALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNITED RENTALS has no effect on the direction of Bank of America i.e., Bank of America and UNITED RENTALS go up and down completely randomly.
Pair Corralation between Bank of America and UNITED RENTALS
Assuming the 90 days trading horizon Verizon Communications is expected to generate 0.87 times more return on investment than UNITED RENTALS. However, Verizon Communications is 1.16 times less risky than UNITED RENTALS. It trades about 0.11 of its potential returns per unit of risk. UNITED RENTALS is currently generating about -0.09 per unit of risk. If you would invest 3,740 in Verizon Communications on December 28, 2024 and sell it today you would earn a total of 443.00 from holding Verizon Communications or generate 11.84% 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. UNITED RENTALS
Performance |
Timeline |
Verizon Communications |
UNITED RENTALS |
Bank of America and UNITED RENTALS Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Bank of America and UNITED RENTALS
The main advantage of trading using opposite Bank of America and UNITED RENTALS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, UNITED RENTALS 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 UNITED RENTALS will offset losses from the drop in UNITED RENTALS's long position.Bank of America vs. FIREWEED METALS P | Bank of America vs. CHIBA BANK | Bank of America vs. Preferred Bank | Bank of America vs. BANK OF CHINA |
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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