Correlation Between Bank of America and EnQuest PLC

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

Diversification Opportunities for Bank of America and EnQuest PLC

0.27

Correlation Coefficient

Bank of America  EnQuest PLC

Modest diversification

The 3 months correlation between Bank and EnQuest is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and EnQuest PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EnQuest PLC 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 EnQuest PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EnQuest PLC has no effect on the direction of Bank of America i.e., Bank of America and EnQuest PLC go up and down completely randomly.

Pair Corralation between Bank of America and EnQuest PLC

Considering the 90-day investment horizon Bank of America is expected to under-perform the EnQuest PLC. But the stock apears to be less risky and, when comparing its historical volatility, Bank of America is 3.34 times less risky than EnQuest PLC. The stock trades about -0.02 of its potential returns per unit of risk. The EnQuest PLC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  14.00  in EnQuest PLC on December 28, 2024 and sell it today you would earn a total of  2.00  from holding EnQuest PLC or generate 14.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Bank of America  vs.  EnQuest PLC

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.

EnQuest PLC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EnQuest PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, EnQuest PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and EnQuest PLC

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

The idea behind Bank of America and EnQuest PLC 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.