Correlation Between Bank of America and Pesquera Exalmar

Can any of the company-specific risk be diversified away by investing in both Bank of America and Pesquera Exalmar 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 Pesquera Exalmar 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 Pesquera Exalmar SAA, you can compare the effects of market volatilities on Bank of America and Pesquera Exalmar 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 Pesquera Exalmar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Pesquera Exalmar.

Diversification Opportunities for Bank of America and Pesquera Exalmar

0.82

Correlation Coefficient

Bank of America  Pesquera Exalmar

Very poor diversification

The 3 months correlation between Bank and Pesquera is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Pesquera Exalmar SAA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pesquera Exalmar SAA 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 Pesquera Exalmar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pesquera Exalmar SAA has no effect on the direction of Bank of America i.e., Bank of America and Pesquera Exalmar go up and down completely randomly.

Pair Corralation between Bank of America and Pesquera Exalmar

Assuming the 90 days trading horizon Bank of America is expected to generate 0.86 times more return on investment than Pesquera Exalmar. However, Bank of America is 1.17 times less risky than Pesquera Exalmar. It trades about 0.13 of its potential returns per unit of risk. Pesquera Exalmar SAA is currently generating about -0.09 per unit of risk. If you would invest  4,250  in Bank of America on October 27, 2024 and sell it today you would earn a total of  410.00  from holding Bank of America or generate 9.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	45.45%
Values	Daily Returns

Bank of America  vs.  Pesquera Exalmar SAA

Bank of America

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. 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.

Pesquera Exalmar SAA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pesquera Exalmar SAA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's primary indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Bank of America and Pesquera Exalmar

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

The idea behind Bank of America and Pesquera Exalmar SAA 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.