Correlation Between Bank of America and Shanghai Rendu

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

Diversification Opportunities for Bank of America and Shanghai Rendu

-0.19

Correlation Coefficient

Bank of America  Shanghai Rendu

Good diversification

The 3 months correlation between Bank and Shanghai is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Shanghai Rendu Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Rendu Biote 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 Shanghai Rendu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Rendu Biote has no effect on the direction of Bank of America i.e., Bank of America and Shanghai Rendu go up and down completely randomly.

Pair Corralation between Bank of America and Shanghai Rendu

Considering the 90-day investment horizon Bank of America is expected to generate 0.44 times more return on investment than Shanghai Rendu. However, Bank of America is 2.29 times less risky than Shanghai Rendu. It trades about -0.1 of its potential returns per unit of risk. Shanghai Rendu Biotechnology is currently generating about -0.05 per unit of risk. If you would invest  4,725  in Bank of America on November 28, 2024 and sell it today you would lose (327.50) from holding Bank of America or give up 6.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Bank of America  vs.  Shanghai Rendu Biotechnology

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.

Shanghai Rendu Biote

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Rendu Biotechnology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Bank of America and Shanghai Rendu

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

The idea behind Bank of America and Shanghai Rendu Biotechnology 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.