Correlation Between Bank of America and CD Projekt

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

Diversification Opportunities for Bank of America and CD Projekt

-0.63

Correlation Coefficient

Bank of America  CD Projekt

Excellent diversification

The 3 months correlation between Bank and OTGLF is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and CD Projekt SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CD Projekt SA 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 CD Projekt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CD Projekt SA has no effect on the direction of Bank of America i.e., Bank of America and CD Projekt go up and down completely randomly.

Pair Corralation between Bank of America and CD Projekt

Considering the 90-day investment horizon Bank of America is expected to generate 1.47 times less return on investment than CD Projekt. But when comparing it to its historical volatility, Bank of America is 2.02 times less risky than CD Projekt. It trades about 0.06 of its potential returns per unit of risk. CD Projekt SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,898  in CD Projekt SA on September 12, 2024 and sell it today you would earn a total of  1,602  from holding CD Projekt SA or generate 55.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Bank of America  vs.  CD Projekt SA

Bank of America

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.

CD Projekt SA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CD Projekt SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, CD Projekt may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bank of America and CD Projekt

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

The idea behind Bank of America and CD Projekt SA 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.