Correlation Between Bank of America and Sotherly Hotels

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

Diversification Opportunities for Bank of America and Sotherly Hotels

0.15

Correlation Coefficient

Bank of America  Sotherly Hotels

Average diversification

The 3 months correlation between Bank and Sotherly is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Sotherly Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sotherly Hotels 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 Sotherly Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sotherly Hotels has no effect on the direction of Bank of America i.e., Bank of America and Sotherly Hotels go up and down completely randomly.

Pair Corralation between Bank of America and Sotherly Hotels

Considering the 90-day investment horizon Bank of America is expected to generate 0.73 times more return on investment than Sotherly Hotels. However, Bank of America is 1.38 times less risky than Sotherly Hotels. It trades about -0.02 of its potential returns per unit of risk. Sotherly Hotels is currently generating about -0.19 per unit of risk. If you would invest  4,363  in Bank of America on December 28, 2024 and sell it today you would lose (107.00) from holding Bank of America or give up 2.45% of portfolio value over 90 days.

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

Bank of America  vs.  Sotherly Hotels

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.

Sotherly Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sotherly Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Bank of America and Sotherly Hotels

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

The idea behind Bank of America and Sotherly Hotels 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.