Correlation Between Bank of America and STATE

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

Diversification Opportunities for Bank of America and STATE

0.32

Correlation Coefficient

Bank of America  STATE

Weak diversification

The 3 months correlation between Bank and STATE is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and STATE STR P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STATE STR P 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 STATE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STATE STR P has no effect on the direction of Bank of America i.e., Bank of America and STATE go up and down completely randomly.

Pair Corralation between Bank of America and STATE

Considering the 90-day investment horizon Bank of America is expected to under-perform the STATE. In addition to that, Bank of America is 1.74 times more volatile than STATE STR P. It trades about -0.1 of its total potential returns per unit of risk. STATE STR P is currently generating about -0.11 per unit of volatility. If you would invest  9,775  in STATE STR P on November 28, 2024 and sell it today you would lose (401.00) from holding STATE STR P or give up 4.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.22%
Values	Daily Returns

Bank of America  vs.  STATE STR P

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.

STATE STR P

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Bank of America and STATE STR P 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..