Correlation Between Bank of America and WILLIAMS

Can any of the company-specific risk be diversified away by investing in both Bank of America and WILLIAMS 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 WILLIAMS 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 WILLIAMS INC 875, you can compare the effects of market volatilities on Bank of America and WILLIAMS 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 WILLIAMS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and WILLIAMS.

Diversification Opportunities for Bank of America and WILLIAMS

-0.3

Correlation Coefficient

Bank of America  WILLIAMS

Very good diversification

The 3 months correlation between Bank and WILLIAMS is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and WILLIAMS INC 875 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WILLIAMS INC 875 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 WILLIAMS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WILLIAMS INC 875 has no effect on the direction of Bank of America i.e., Bank of America and WILLIAMS go up and down completely randomly.

Pair Corralation between Bank of America and WILLIAMS

Considering the 90-day investment horizon Bank of America is expected to under-perform the WILLIAMS. In addition to that, Bank of America is 4.47 times more volatile than WILLIAMS INC 875. It trades about -0.03 of its total potential returns per unit of risk. WILLIAMS INC 875 is currently generating about 0.02 per unit of volatility. If you would invest  11,877  in WILLIAMS INC 875 on December 24, 2024 and sell it today you would earn a total of  41.00  from holding WILLIAMS INC 875 or generate 0.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

Bank of America  vs.  WILLIAMS INC 875

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.

WILLIAMS INC 875

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WILLIAMS INC 875 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, WILLIAMS is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank of America and WILLIAMS

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

The idea behind Bank of America and WILLIAMS INC 875 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.