Correlation Between Bank of America and Sterling Construction

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

Diversification Opportunities for Bank of America and Sterling Construction

-0.06

Correlation Coefficient

Bank of America  Sterling Construction

Good diversification

The 3 months correlation between Bank and Sterling is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction 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 Sterling Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Construction has no effect on the direction of Bank of America i.e., Bank of America and Sterling Construction go up and down completely randomly.

Pair Corralation between Bank of America and Sterling Construction

Considering the 90-day investment horizon Bank of America is expected to generate 0.25 times more return on investment than Sterling Construction. However, Bank of America is 4.01 times less risky than Sterling Construction. It trades about 0.04 of its potential returns per unit of risk. Sterling Construction is currently generating about -0.11 per unit of risk. If you would invest  4,581  in Bank of America on November 20, 2024 and sell it today you would earn a total of  115.00  from holding Bank of America or generate 2.51% 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.  Sterling Construction

Bank of America

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Bank of America is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Sterling Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sterling Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Bank of America and Sterling Construction

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

The idea behind Bank of America and Sterling Construction 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.