Correlation Between Bank of America and Generac Holdings

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

Diversification Opportunities for Bank of America and Generac Holdings

0.88

Correlation Coefficient

Bank of America  Generac Holdings

Very poor diversification

The 3 months correlation between Bank and Generac is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Generac Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Generac Holdings 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 Generac Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Generac Holdings has no effect on the direction of Bank of America i.e., Bank of America and Generac Holdings go up and down completely randomly.

Pair Corralation between Bank of America and Generac Holdings

Considering the 90-day investment horizon Bank of America is expected to generate 1.55 times less return on investment than Generac Holdings. But when comparing it to its historical volatility, Bank of America is 1.36 times less risky than Generac Holdings. It trades about 0.16 of its potential returns per unit of risk. Generac Holdings is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  14,703  in Generac Holdings on September 3, 2024 and sell it today you would earn a total of  4,117  from holding Generac Holdings or generate 28.0% 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.  Generac Holdings

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.

Generac Holdings

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Generac Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Generac Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and Generac Holdings

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

The idea behind Bank of America and Generac Holdings 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.