Correlation Between Bank of America and WBI BullBear

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

Diversification Opportunities for Bank of America and WBI BullBear

0.94

Correlation Coefficient

Bank of America  WBI BullBear

Almost no diversification

The 3 months correlation between Bank and WBI is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and WBI BullBear Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WBI BullBear Quality 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 WBI BullBear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WBI BullBear Quality has no effect on the direction of Bank of America i.e., Bank of America and WBI BullBear go up and down completely randomly.

Pair Corralation between Bank of America and WBI BullBear

Considering the 90-day investment horizon Bank of America is expected to under-perform the WBI BullBear. But the stock apears to be less risky and, when comparing its historical volatility, Bank of America is 1.05 times less risky than WBI BullBear. The stock trades about -0.26 of its potential returns per unit of risk. The WBI BullBear Quality is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  3,707  in WBI BullBear Quality on September 30, 2024 and sell it today you would lose (161.00) from holding WBI BullBear Quality or give up 4.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Bank of America  vs.  WBI BullBear Quality

Bank of America

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WBI BullBear Quality

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WBI BullBear Quality are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward indicators, WBI BullBear is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Bank of America and WBI BullBear

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

The idea behind Bank of America and WBI BullBear Quality 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.