Correlation Between Bank of America and Themes Transatlantic

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

Diversification Opportunities for Bank of America and Themes Transatlantic

-0.54

Correlation Coefficient

Bank of America  Themes Transatlantic

Excellent diversification

The 3 months correlation between Bank and Themes is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Themes Transatlantic Defense in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Themes Transatlantic 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 Themes Transatlantic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Themes Transatlantic has no effect on the direction of Bank of America i.e., Bank of America and Themes Transatlantic go up and down completely randomly.

Pair Corralation between Bank of America and Themes Transatlantic

Considering the 90-day investment horizon Bank of America is expected to under-perform the Themes Transatlantic. In addition to that, Bank of America is 1.27 times more volatile than Themes Transatlantic Defense. It trades about -0.03 of its total potential returns per unit of risk. Themes Transatlantic Defense is currently generating about 0.21 per unit of volatility. If you would invest  2,544  in Themes Transatlantic Defense on December 19, 2024 and sell it today you would earn a total of  430.00  from holding Themes Transatlantic Defense or generate 16.9% return on investment over 90 days.

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

Bank of America  vs.  Themes Transatlantic Defense

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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Themes Transatlantic

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Themes Transatlantic Defense are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Themes Transatlantic displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and Themes Transatlantic

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

The idea behind Bank of America and Themes Transatlantic Defense 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..