Correlation Between Bank of America and All American

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

Diversification Opportunities for Bank of America and All American

0.21

Correlation Coefficient

Bank of America  All American

Modest diversification

The 3 months correlation between Bank and All is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and All American Gld in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on All American Gld 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 All American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of All American Gld has no effect on the direction of Bank of America i.e., Bank of America and All American go up and down completely randomly.

Pair Corralation between Bank of America and All American

Considering the 90-day investment horizon Bank of America is expected to under-perform the All American. But the stock apears to be less risky and, when comparing its historical volatility, Bank of America is 8.19 times less risky than All American. The stock trades about -0.14 of its potential returns per unit of risk. The All American Gld is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  0.10  in All American Gld on December 11, 2024 and sell it today you would lose (0.02) from holding All American Gld or give up 20.0% of portfolio value over 90 days.

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

Bank of America  vs.  All American Gld

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 unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

All American Gld

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in All American Gld are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting technical and fundamental indicators, All American exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and All American

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

The idea behind Bank of America and All American Gld 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.