Correlation Between Bank of America and Bonterra Energy

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

Diversification Opportunities for Bank of America and Bonterra Energy

-0.8

Correlation Coefficient

Bank of America  Bonterra Energy

Pay attention - limited upside

The 3 months correlation between Bank and Bonterra is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Bonterra Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bonterra Energy Corp 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 Bonterra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bonterra Energy Corp has no effect on the direction of Bank of America i.e., Bank of America and Bonterra Energy go up and down completely randomly.

Pair Corralation between Bank of America and Bonterra Energy

Considering the 90-day investment horizon Bank of America is expected to generate 0.57 times more return on investment than Bonterra Energy. However, Bank of America is 1.75 times less risky than Bonterra Energy. It trades about 0.05 of its potential returns per unit of risk. Bonterra Energy Corp is currently generating about -0.04 per unit of risk. If you would invest  3,246  in Bank of America on September 12, 2024 and sell it today you would earn a total of  1,329  from holding Bank of America or generate 40.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Bank of America  vs.  Bonterra Energy Corp

Bank of America

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.

Bonterra Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bonterra Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Bank of America and Bonterra Energy

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

The idea behind Bank of America and Bonterra Energy Corp 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.