Correlation Between Bank of America and First Quantum

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

Diversification Opportunities for Bank of America and First Quantum

0.47

Correlation Coefficient

Bank of America  First Quantum

Very weak diversification

The 3 months correlation between Bank and First is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and First Quantum Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Quantum Minerals 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 First Quantum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Quantum Minerals has no effect on the direction of Bank of America i.e., Bank of America and First Quantum go up and down completely randomly.

Pair Corralation between Bank of America and First Quantum

Considering the 90-day investment horizon Bank of America is expected to generate 1.73 times less return on investment than First Quantum. But when comparing it to its historical volatility, Bank of America is 1.75 times less risky than First Quantum. It trades about 0.16 of its potential returns per unit of risk. First Quantum Minerals is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,463  in First Quantum Minerals on September 3, 2024 and sell it today you would earn a total of  450.00  from holding First Quantum Minerals or generate 30.76% return on investment over 90 days.

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

Bank of America  vs.  First Quantum Minerals

Bank of America

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.

First Quantum Minerals

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Quantum Minerals are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, First Quantum displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and First Quantum

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

The idea behind Bank of America and First Quantum Minerals 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.