Correlation Between Bank of America and 404280AM1

Can any of the company-specific risk be diversified away by investing in both Bank of America and 404280AM1 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 404280AM1 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 HSBC HLDGS PLC, you can compare the effects of market volatilities on Bank of America and 404280AM1 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 404280AM1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and 404280AM1.

Diversification Opportunities for Bank of America and 404280AM1

0.13

Correlation Coefficient

Bank of America  404280AM1

Average diversification

The 3 months correlation between Bank and 404280AM1 is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and HSBC HLDGS PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC HLDGS PLC 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 404280AM1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC HLDGS PLC has no effect on the direction of Bank of America i.e., Bank of America and 404280AM1 go up and down completely randomly.

Pair Corralation between Bank of America and 404280AM1

Considering the 90-day investment horizon Bank of America is expected to under-perform the 404280AM1. In addition to that, Bank of America is 1.35 times more volatile than HSBC HLDGS PLC. It trades about -0.1 of its total potential returns per unit of risk. HSBC HLDGS PLC is currently generating about 0.0 per unit of volatility. If you would invest  11,059  in HSBC HLDGS PLC on November 28, 2024 and sell it today you would lose (3.00) from holding HSBC HLDGS PLC or give up 0.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Bank of America  vs.  HSBC HLDGS PLC

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.

HSBC HLDGS PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days HSBC HLDGS PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 404280AM1 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 404280AM1

The main advantage of trading using opposite Bank of America and 404280AM1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, 404280AM1 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 404280AM1 will offset losses from the drop in 404280AM1's long position.

The idea behind Bank of America and HSBC HLDGS PLC 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .