Correlation Between Bank of America and Nufarm Finance

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

Diversification Opportunities for Bank of America and Nufarm Finance

0.71

Correlation Coefficient

Bank of America  Nufarm Finance

Poor diversification

The 3 months correlation between Bank and Nufarm is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Nufarm Finance NZ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nufarm Finance NZ 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 Nufarm Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nufarm Finance NZ has no effect on the direction of Bank of America i.e., Bank of America and Nufarm Finance go up and down completely randomly.

Pair Corralation between Bank of America and Nufarm Finance

Considering the 90-day investment horizon Bank of America is expected to generate 1.74 times more return on investment than Nufarm Finance. However, Bank of America is 1.74 times more volatile than Nufarm Finance NZ. It trades about 0.16 of its potential returns per unit of risk. Nufarm Finance NZ is currently generating about 0.13 per unit of risk. If you would invest  4,044  in Bank of America on September 3, 2024 and sell it today you would earn a total of  707.00  from holding Bank of America or generate 17.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Bank of America  vs.  Nufarm Finance NZ

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.

Nufarm Finance NZ

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nufarm Finance NZ are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Nufarm Finance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bank of America and Nufarm Finance

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

The idea behind Bank of America and Nufarm Finance NZ 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.

Check out your portfolio center.

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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..