Correlation Between Bank of America and SPDR Gold

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

Diversification Opportunities for Bank of America and SPDR Gold

-0.35

Correlation Coefficient

Bank of America  SPDR Gold

Very good diversification

The 3 months correlation between Bank and SPDR is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and SPDR Gold MiniShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Gold MiniShares 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 SPDR Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Gold MiniShares has no effect on the direction of Bank of America i.e., Bank of America and SPDR Gold go up and down completely randomly.

Pair Corralation between Bank of America and SPDR Gold

Considering the 90-day investment horizon Bank of America is expected to under-perform the SPDR Gold. In addition to that, Bank of America is 1.9 times more volatile than SPDR Gold MiniShares. It trades about -0.02 of its total potential returns per unit of risk. SPDR Gold MiniShares is currently generating about 0.29 per unit of volatility. If you would invest  5,181  in SPDR Gold MiniShares on December 27, 2024 and sell it today you would earn a total of  797.00  from holding SPDR Gold MiniShares or generate 15.38% return on investment over 90 days.

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

Bank of America  vs.  SPDR Gold MiniShares

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.

SPDR Gold MiniShares

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold MiniShares are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting fundamental indicators, SPDR Gold displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and SPDR Gold

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

The idea behind Bank of America and SPDR Gold MiniShares 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.