Correlation Between Bank of America and UST Inc

Can any of the company-specific risk be diversified away by investing in both Bank of America and UST Inc 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 UST Inc 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 ProShares Ultra 7 10, you can compare the effects of market volatilities on Bank of America and UST Inc 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 UST Inc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and UST Inc.

Diversification Opportunities for Bank of America and UST Inc

-0.64

Correlation Coefficient

Bank of America  UST Inc

Excellent diversification

The 3 months correlation between Bank and UST is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and ProShares Ultra 7 10 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Ultra 7 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 UST Inc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Ultra 7 has no effect on the direction of Bank of America i.e., Bank of America and UST Inc go up and down completely randomly.

Pair Corralation between Bank of America and UST Inc

Considering the 90-day investment horizon Bank of America is expected to under-perform the UST Inc. In addition to that, Bank of America is 1.93 times more volatile than ProShares Ultra 7 10. It trades about -0.02 of its total potential returns per unit of risk. ProShares Ultra 7 10 is currently generating about 0.13 per unit of volatility. If you would invest  4,053  in ProShares Ultra 7 10 on December 25, 2024 and sell it today you would earn a total of  254.00  from holding ProShares Ultra 7 10 or generate 6.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Bank of America  vs.  ProShares Ultra 7 10

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.

ProShares Ultra 7

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra 7 10 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, UST Inc may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Bank of America and UST Inc

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

The idea behind Bank of America and ProShares Ultra 7 10 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.