Correlation Between Bank of America and IShares Trust

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

Diversification Opportunities for Bank of America and IShares Trust

0.07

Correlation Coefficient

Bank of America  IShares Trust

Significant diversification

The 3 months correlation between Bank and IShares is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust 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 Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of Bank of America i.e., Bank of America and IShares Trust go up and down completely randomly.

Pair Corralation between Bank of America and IShares Trust

Considering the 90-day investment horizon Bank of America is expected to under-perform the IShares Trust. In addition to that, Bank of America is 5.92 times more volatile than iShares Trust . It trades about -0.01 of its total potential returns per unit of risk. iShares Trust is currently generating about 0.09 per unit of volatility. If you would invest  2,280  in iShares Trust on December 4, 2024 and sell it today you would earn a total of  25.00  from holding iShares Trust or generate 1.1% return on investment over 90 days.

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

Bank of America  vs.  iShares Trust

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 Trust

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, IShares Trust is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Bank of America and IShares Trust

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

The idea behind Bank of America and iShares Trust 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.