Correlation Between Bank of America and Demant A/S

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

Diversification Opportunities for Bank of America and Demant A/S

0.29

Correlation Coefficient

Bank of America  Demant A/S

Modest diversification

The 3 months correlation between Bank and Demant is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Demant AS ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Demant AS ADR 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 Demant A/S. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Demant AS ADR has no effect on the direction of Bank of America i.e., Bank of America and Demant A/S go up and down completely randomly.

Pair Corralation between Bank of America and Demant A/S

Considering the 90-day investment horizon Bank of America is expected to generate 0.78 times more return on investment than Demant A/S. However, Bank of America is 1.28 times less risky than Demant A/S. It trades about 0.08 of its potential returns per unit of risk. Demant AS ADR is currently generating about 0.03 per unit of risk. If you would invest  2,714  in Bank of America on December 2, 2024 and sell it today you would earn a total of  1,896  from holding Bank of America or generate 69.86% return on investment over 90 days.

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

Bank of America  vs.  Demant AS ADR

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.

Demant AS ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Demant AS ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Demant A/S 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 Demant A/S

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

The idea behind Bank of America and Demant AS ADR 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..