Correlation Between Bank of America and Naturgy Energy

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

Diversification Opportunities for Bank of America and Naturgy Energy

-0.51

Correlation Coefficient

Bank of America  Naturgy Energy

Excellent diversification

The 3 months correlation between Bank and Naturgy is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Naturgy Energy Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naturgy Energy Group 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 Naturgy Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naturgy Energy Group has no effect on the direction of Bank of America i.e., Bank of America and Naturgy Energy go up and down completely randomly.

Pair Corralation between Bank of America and Naturgy Energy

Considering the 90-day investment horizon Bank of America is expected to under-perform the Naturgy Energy. In addition to that, Bank of America is 1.33 times more volatile than Naturgy Energy Group. It trades about -0.02 of its total potential returns per unit of risk. Naturgy Energy Group is currently generating about 0.14 per unit of volatility. If you would invest  2,336  in Naturgy Energy Group on December 29, 2024 and sell it today you would earn a total of  242.00  from holding Naturgy Energy Group or generate 10.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.31%
Values	Daily Returns

Bank of America  vs.  Naturgy Energy Group

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

Naturgy Energy Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Naturgy Energy Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Naturgy Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Bank of America and Naturgy Energy

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

The idea behind Bank of America and Naturgy Energy Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.