Correlation Between Bank of America and Compania

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

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

Diversification Opportunities for Bank of America and Compania

-0.31

Correlation Coefficient

Bank of America  Compania

Very good diversification

The 3 months correlation between Bank and Compania is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Compania de Minas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compania de Minas 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 Bank of America are associated (or correlated) with Compania. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compania de Minas has no effect on the direction of Bank of America i.e., Bank of America and Compania go up and down completely randomly.

Pair Corralation between Bank of America and Compania

Assuming the 90 days trading horizon Bank of America is expected to generate 0.99 times more return on investment than Compania. However, Bank of America is 1.01 times less risky than Compania. It trades about 0.06 of its potential returns per unit of risk. Compania de Minas is currently generating about 0.05 per unit of risk. If you would invest  3,561  in Bank of America on October 11, 2024 and sell it today you would earn a total of  1,039  from holding Bank of America or generate 29.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	49.49%
Values	Daily Returns

Bank of America  vs.  Compania de Minas

Bank of America

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Bank of America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very inconsistent primary indicators, Bank of America displayed solid returns over the last few months and may actually be approaching a breakup point.

Compania de Minas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compania de Minas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Bank of America and Compania

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

The idea behind Bank of America and Compania de Minas 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.