Correlation Between Bank of America and Keurig

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

Diversification Opportunities for Bank of America and Keurig

-0.24

Correlation Coefficient

Bank of America  Keurig

Very good diversification

The 3 months correlation between Bank and Keurig is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Keurig Dr Pepper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Keurig Dr Pepper 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 Keurig. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Keurig Dr Pepper has no effect on the direction of Bank of America i.e., Bank of America and Keurig go up and down completely randomly.

Pair Corralation between Bank of America and Keurig

Considering the 90-day investment horizon Bank of America is expected to under-perform the Keurig. In addition to that, Bank of America is 5.49 times more volatile than Keurig Dr Pepper. It trades about -0.05 of its total potential returns per unit of risk. Keurig Dr Pepper is currently generating about -0.06 per unit of volatility. If you would invest  9,987  in Keurig Dr Pepper on December 29, 2024 and sell it today you would lose (118.00) from holding Keurig Dr Pepper or give up 1.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Bank of America  vs.  Keurig Dr Pepper

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.

Keurig Dr Pepper

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Bank of America and Keurig

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

The idea behind Bank of America and Keurig Dr Pepper 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.