Correlation Between Bank of America and ProShares Trust

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

Diversification Opportunities for Bank of America and ProShares Trust

0.82

Correlation Coefficient

Bank of America  ProShares Trust

Very poor diversification

The 3 months correlation between Bank and ProShares is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and ProShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Trust 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 ProShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Trust has no effect on the direction of Bank of America i.e., Bank of America and ProShares Trust go up and down completely randomly.

Pair Corralation between Bank of America and ProShares Trust

Considering the 90-day investment horizon Bank of America is expected to generate 4.33 times less return on investment than ProShares Trust. But when comparing it to its historical volatility, Bank of America is 5.43 times less risky than ProShares Trust. It trades about 0.27 of its potential returns per unit of risk. ProShares Trust is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  4,954  in ProShares Trust on October 22, 2024 and sell it today you would earn a total of  1,159  from holding ProShares Trust or generate 23.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.74%
Values	Daily Returns

Bank of America  vs.  ProShares Trust

Bank of America

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ProShares Trust

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Trust are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, ProShares Trust unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and ProShares Trust

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

The idea behind Bank of America and ProShares Trust 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.