Correlation Between Bank of America and 00206RJY9

Can any of the company-specific risk be diversified away by investing in both Bank of America and 00206RJY9 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 00206RJY9 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 ATT INC, you can compare the effects of market volatilities on Bank of America and 00206RJY9 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 00206RJY9. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and 00206RJY9.

Diversification Opportunities for Bank of America and 00206RJY9

0.3

Correlation Coefficient

Bank of America  00206RJY9

Weak diversification

The 3 months correlation between Bank and 00206RJY9 is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and ATT INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 00206RJY9 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 00206RJY9. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 00206RJY9 has no effect on the direction of Bank of America i.e., Bank of America and 00206RJY9 go up and down completely randomly.

Pair Corralation between Bank of America and 00206RJY9

Considering the 90-day investment horizon Bank of America is expected to under-perform the 00206RJY9. In addition to that, Bank of America is 1.73 times more volatile than ATT INC. It trades about -0.1 of its total potential returns per unit of risk. ATT INC is currently generating about -0.07 per unit of volatility. If you would invest  8,869  in ATT INC on November 28, 2024 and sell it today you would lose (241.00) from holding ATT INC or give up 2.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.67%
Values	Daily Returns

Bank of America  vs.  ATT INC

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 latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

00206RJY9

Risk-Adjusted Performance

Very Weak

Over the last 90 days ATT INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 00206RJY9 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank of America and 00206RJY9

The main advantage of trading using opposite Bank of America and 00206RJY9 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, 00206RJY9 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 00206RJY9 will offset losses from the drop in 00206RJY9's long position.

The idea behind Bank of America and ATT INC 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.