Correlation Between Bank of America and US Treasury

Can any of the company-specific risk be diversified away by investing in both Bank of America and US Treasury 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 US Treasury 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 US Treasury 6, you can compare the effects of market volatilities on Bank of America and US Treasury 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 US Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and US Treasury.

Diversification Opportunities for Bank of America and US Treasury

-0.49

Correlation Coefficient

Bank of America  US Treasury

Very good diversification

The 3 months correlation between Bank and XBIL is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and US Treasury 6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 6 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 US Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Treasury 6 has no effect on the direction of Bank of America i.e., Bank of America and US Treasury go up and down completely randomly.

Pair Corralation between Bank of America and US Treasury

Considering the 90-day investment horizon Bank of America is expected to under-perform the US Treasury. In addition to that, Bank of America is 70.79 times more volatile than US Treasury 6. It trades about -0.02 of its total potential returns per unit of risk. US Treasury 6 is currently generating about 0.74 per unit of volatility. If you would invest  4,966  in US Treasury 6 on December 27, 2024 and sell it today you would earn a total of  50.00  from holding US Treasury 6 or generate 1.01% return on investment over 90 days.

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

Bank of America  vs.  US Treasury 6

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.

US Treasury 6

Risk-Adjusted Performance

Market Crasher

Compared to the overall equity markets, risk-adjusted returns on investments in US Treasury 6 are ranked lower than 58 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward indicators, US Treasury is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Bank of America and US Treasury

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

The idea behind Bank of America and US Treasury 6 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.