Correlation Between Bank of America and IShares Focused

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

Diversification Opportunities for Bank of America and IShares Focused

0.83

Correlation Coefficient

Bank of America  IShares Focused

Very poor diversification

The 3 months correlation between Bank and IShares is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and iShares Focused Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Focused Value 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 IShares Focused. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Focused Value has no effect on the direction of Bank of America i.e., Bank of America and IShares Focused go up and down completely randomly.

Pair Corralation between Bank of America and IShares Focused

Considering the 90-day investment horizon Bank of America is expected to under-perform the IShares Focused. In addition to that, Bank of America is 1.74 times more volatile than iShares Focused Value. It trades about -0.02 of its total potential returns per unit of risk. iShares Focused Value is currently generating about 0.03 per unit of volatility. If you would invest  6,927  in iShares Focused Value on December 28, 2024 and sell it today you would earn a total of  102.00  from holding iShares Focused Value or generate 1.47% return on investment over 90 days.

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

Bank of America  vs.  iShares Focused Value

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.

iShares Focused Value

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Focused Value are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, IShares Focused is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Bank of America and IShares Focused

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

The idea behind Bank of America and iShares Focused Value 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.