Correlation Between Bank of America and Aqua Power
Can any of the company-specific risk be diversified away by investing in both Bank of America and Aqua Power 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 Aqua Power 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 Aqua Power Systems, you can compare the effects of market volatilities on Bank of America and Aqua Power 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 Aqua Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Aqua Power.
Diversification Opportunities for Bank of America and Aqua Power
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and Aqua is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Aqua Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqua Power Systems 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 Aqua Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqua Power Systems has no effect on the direction of Bank of America i.e., Bank of America and Aqua Power go up and down completely randomly.
Pair Corralation between Bank of America and Aqua Power
Considering the 90-day investment horizon Bank of America is expected to generate 4.24 times less return on investment than Aqua Power. But when comparing it to its historical volatility, Bank of America is 9.23 times less risky than Aqua Power. It trades about 0.06 of its potential returns per unit of risk. Aqua Power Systems is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 33.00 in Aqua Power Systems on December 5, 2024 and sell it today you would lose (30.55) from holding Aqua Power Systems or give up 92.58% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Bank of America vs. Aqua Power Systems
Performance |
Timeline |
Bank of America |
Aqua Power Systems |
Bank of America and Aqua Power Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Bank of America and Aqua Power
The main advantage of trading using opposite Bank of America and Aqua Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Aqua Power 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 Aqua Power will offset losses from the drop in Aqua Power's long position.Bank of America vs. Citigroup | Bank of America vs. Wells Fargo | Bank of America vs. Toronto Dominion Bank | Bank of America vs. Royal Bank of |
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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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