Correlation Between Bank of America and Banco Bilbao

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

Diversification Opportunities for Bank of America and Banco Bilbao

-0.58

Correlation Coefficient

Bank of America  Banco Bilbao

Excellent diversification

The 3 months correlation between Bank and Banco is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Banco Bilbao Vizcaya in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Bilbao Vizcaya 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 Banco Bilbao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Bilbao Vizcaya has no effect on the direction of Bank of America i.e., Bank of America and Banco Bilbao go up and down completely randomly.

Pair Corralation between Bank of America and Banco Bilbao

Assuming the 90 days trading horizon Bank of America is expected to under-perform the Banco Bilbao. But the stock apears to be less risky and, when comparing its historical volatility, Bank of America is 1.25 times less risky than Banco Bilbao. The stock trades about -0.06 of its potential returns per unit of risk. The Banco Bilbao Vizcaya is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  20,005  in Banco Bilbao Vizcaya on December 29, 2024 and sell it today you would earn a total of  8,051  from holding Banco Bilbao Vizcaya or generate 40.24% return on investment over 90 days.

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

Bank of America  vs.  Banco Bilbao Vizcaya

Bank of America

Risk-Adjusted Performance

Very Weak

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 latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Banco Bilbao Vizcaya

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Bilbao Vizcaya are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Banco Bilbao showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and Banco Bilbao

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

The idea behind Bank of America and Banco Bilbao Vizcaya 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.