Correlation Between Bank of America and Robostar CoLtd

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

Diversification Opportunities for Bank of America and Robostar CoLtd

0.41

Correlation Coefficient

Bank of America  Robostar CoLtd

Very weak diversification

The 3 months correlation between Bank and Robostar is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Robostar CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Robostar CoLtd 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 Robostar CoLtd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Robostar CoLtd has no effect on the direction of Bank of America i.e., Bank of America and Robostar CoLtd go up and down completely randomly.

Pair Corralation between Bank of America and Robostar CoLtd

Considering the 90-day investment horizon Bank of America is expected to under-perform the Robostar CoLtd. But the stock apears to be less risky and, when comparing its historical volatility, Bank of America is 3.64 times less risky than Robostar CoLtd. The stock trades about -0.1 of its potential returns per unit of risk. The Robostar CoLtd is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,255,000  in Robostar CoLtd on November 29, 2024 and sell it today you would earn a total of  400,000  from holding Robostar CoLtd or generate 17.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.61%
Values	Daily Returns

Bank of America  vs.  Robostar CoLtd

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 unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Robostar CoLtd

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Robostar CoLtd are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Robostar CoLtd sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and Robostar CoLtd

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

The idea behind Bank of America and Robostar CoLtd 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.