Correlation Between Bank of America and ProShares Short

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

Diversification Opportunities for Bank of America and ProShares Short

0.66

Correlation Coefficient

Bank of America  ProShares Short

Poor diversification

The 3 months correlation between Bank and ProShares is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and ProShares Short VIX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Short VIX 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 ProShares Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Short VIX has no effect on the direction of Bank of America i.e., Bank of America and ProShares Short go up and down completely randomly.

Pair Corralation between Bank of America and ProShares Short

Considering the 90-day investment horizon Bank of America is expected to generate 0.62 times more return on investment than ProShares Short. However, Bank of America is 1.62 times less risky than ProShares Short. It trades about 0.12 of its potential returns per unit of risk. ProShares Short VIX is currently generating about 0.03 per unit of risk. If you would invest  2,903  in Bank of America on September 14, 2024 and sell it today you would earn a total of  1,664  from holding Bank of America or generate 57.32% return on investment over 90 days.

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

Bank of America  vs.  ProShares Short VIX

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 unsteady basic indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.

ProShares Short VIX

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Short VIX are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, ProShares Short may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bank of America and ProShares Short

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

The idea behind Bank of America and ProShares Short VIX 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.