Correlation Between Bank of America and Ambow Education

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

Diversification Opportunities for Bank of America and Ambow Education

-0.2

Correlation Coefficient

Bank of America  Ambow Education

Good diversification

The 3 months correlation between Bank and Ambow is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Ambow Education Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ambow Education Holding 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 Ambow Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ambow Education Holding has no effect on the direction of Bank of America i.e., Bank of America and Ambow Education go up and down completely randomly.

Pair Corralation between Bank of America and Ambow Education

Considering the 90-day investment horizon Bank of America is expected to under-perform the Ambow Education. But the stock apears to be less risky and, when comparing its historical volatility, Bank of America is 7.2 times less risky than Ambow Education. The stock trades about -0.03 of its potential returns per unit of risk. The Ambow Education Holding is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  347.00  in Ambow Education Holding on December 27, 2024 and sell it today you would lose (66.00) from holding Ambow Education Holding or give up 19.02% of portfolio value over 90 days.

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

Bank of America  vs.  Ambow Education Holding

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 rather sound basic indicators, Bank of America is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Ambow Education Holding

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ambow Education Holding are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, Ambow Education displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and Ambow Education

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

The idea behind Bank of America and Ambow Education Holding 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.