Correlation Between Bank of America and American Diversified

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

Diversification Opportunities for Bank of America and American Diversified

-0.04

Correlation Coefficient

Bank of America  American Diversified

Good diversification

The 3 months correlation between Bank and American is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and American Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Diversified 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 American Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Diversified has no effect on the direction of Bank of America i.e., Bank of America and American Diversified go up and down completely randomly.

Pair Corralation between Bank of America and American Diversified

Considering the 90-day investment horizon Bank of America is expected to generate 0.09 times more return on investment than American Diversified. However, Bank of America is 11.74 times less risky than American Diversified. It trades about 0.04 of its potential returns per unit of risk. American Diversified Holdings is currently generating about -0.01 per unit of risk. If you would invest  4,581  in Bank of America on November 20, 2024 and sell it today you would earn a total of  115.00  from holding Bank of America or generate 2.51% return on investment over 90 days.

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

Bank of America  vs.  American Diversified Holdings

Bank of America

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Bank of America is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

American Diversified

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Diversified Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Bank of America and American Diversified

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

The idea behind Bank of America and American Diversified Holdings 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.