Correlation Between Bank of America and Nextgen Healthcare

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

Diversification Opportunities for Bank of America and Nextgen Healthcare

-0.6

Correlation Coefficient

Bank of America  Nextgen Healthcare

Excellent diversification

The 3 months correlation between Bank and Nextgen is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Nextgen Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextgen Healthcare 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 Nextgen Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextgen Healthcare has no effect on the direction of Bank of America i.e., Bank of America and Nextgen Healthcare go up and down completely randomly.

Pair Corralation between Bank of America and Nextgen Healthcare

If you would invest  1,653  in Nextgen Healthcare on October 6, 2024 and sell it today you would earn a total of  0.00  from holding Nextgen Healthcare or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	5.0%
Values	Daily Returns

Bank of America  vs.  Nextgen Healthcare

Bank of America

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.

Nextgen Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nextgen Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Nextgen Healthcare is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Bank of America and Nextgen Healthcare

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

The idea behind Bank of America and Nextgen Healthcare 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.