Correlation Between Bank of America and Heineken

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

Diversification Opportunities for Bank of America and Heineken

-0.68

Correlation Coefficient

Bank of America  Heineken

Excellent diversification

The 3 months correlation between Bank and Heineken is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Heineken NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heineken NV 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 Heineken. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heineken NV has no effect on the direction of Bank of America i.e., Bank of America and Heineken go up and down completely randomly.

Pair Corralation between Bank of America and Heineken

Considering the 90-day investment horizon Bank of America is expected to under-perform the Heineken. But the stock apears to be less risky and, when comparing its historical volatility, Bank of America is 1.47 times less risky than Heineken. The stock trades about -0.05 of its potential returns per unit of risk. The Heineken NV is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,547  in Heineken NV on December 28, 2024 and sell it today you would earn a total of  549.00  from holding Heineken NV or generate 15.48% return on investment over 90 days.

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

Bank of America  vs.  Heineken NV

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.

Heineken NV

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Heineken NV are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Heineken showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and Heineken

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

The idea behind Bank of America and Heineken NV 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 Global Correlations module to find global opportunities by holding instruments from different markets.