Correlation Between Bank of America and AAM Low

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

Diversification Opportunities for Bank of America and AAM Low

-0.25

Correlation Coefficient

Bank of America  AAM Low

Very good diversification

The 3 months correlation between Bank and AAM is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and AAM Low Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAM Low Duration 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 AAM Low. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAM Low Duration has no effect on the direction of Bank of America i.e., Bank of America and AAM Low go up and down completely randomly.

Pair Corralation between Bank of America and AAM Low

Considering the 90-day investment horizon Bank of America is expected to under-perform the AAM Low. In addition to that, Bank of America is 4.23 times more volatile than AAM Low Duration. It trades about -0.03 of its total potential returns per unit of risk. AAM Low Duration is currently generating about 0.07 per unit of volatility. If you would invest  2,026  in AAM Low Duration on December 26, 2024 and sell it today you would earn a total of  29.50  from holding AAM Low Duration or generate 1.46% return on investment over 90 days.

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

Bank of America  vs.  AAM Low Duration

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

AAM Low Duration

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AAM Low Duration are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, AAM Low is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Bank of America and AAM Low

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

The idea behind Bank of America and AAM Low Duration 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.