Correlation Between Bank of America and Novelis

Can any of the company-specific risk be diversified away by investing in both Bank of America and Novelis 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 Novelis 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 Novelis Corp 475, you can compare the effects of market volatilities on Bank of America and Novelis 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 Novelis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Novelis.

Diversification Opportunities for Bank of America and Novelis

-0.6

Correlation Coefficient

Bank of America  Novelis

Excellent diversification

The 3 months correlation between Bank and Novelis is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Novelis Corp 475 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novelis Corp 475 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 Novelis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novelis Corp 475 has no effect on the direction of Bank of America i.e., Bank of America and Novelis go up and down completely randomly.

Pair Corralation between Bank of America and Novelis

Considering the 90-day investment horizon Bank of America is expected to under-perform the Novelis. In addition to that, Bank of America is 1.55 times more volatile than Novelis Corp 475. It trades about -0.12 of its total potential returns per unit of risk. Novelis Corp 475 is currently generating about -0.17 per unit of volatility. If you would invest  9,385  in Novelis Corp 475 on September 17, 2024 and sell it today you would lose (168.00) from holding Novelis Corp 475 or give up 1.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Bank of America  vs.  Novelis Corp 475

Bank of America

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 11 (%) 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.

Novelis Corp 475

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novelis Corp 475 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Novelis 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 Novelis

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

The idea behind Bank of America and Novelis Corp 475 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.

Check out your portfolio center.

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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.