Correlation Between Bank of America and Data#3

Can any of the company-specific risk be diversified away by investing in both Bank of America and Data#3 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 Data#3 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 Data3 Limited, you can compare the effects of market volatilities on Bank of America and Data#3 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 Data#3. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Data#3.

Diversification Opportunities for Bank of America and Data#3

0.77

Correlation Coefficient

Bank of America  Data#3

Poor diversification

The 3 months correlation between Bank and Data#3 is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Data3 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Data3 Limited 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 Data#3. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Data3 Limited has no effect on the direction of Bank of America i.e., Bank of America and Data#3 go up and down completely randomly.

Pair Corralation between Bank of America and Data#3

Assuming the 90 days trading horizon Bank of America is expected to generate 1.3 times less return on investment than Data#3. In addition to that, Bank of America is 1.2 times more volatile than Data3 Limited. It trades about 0.11 of its total potential returns per unit of risk. Data3 Limited is currently generating about 0.18 per unit of volatility. If you would invest  384.00  in Data3 Limited on September 5, 2024 and sell it today you would earn a total of  21.00  from holding Data3 Limited or generate 5.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Bank of America  vs.  Data3 Limited

Bank of America

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Bank of America is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Data3 Limited

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Data3 Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Data#3 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bank of America and Data#3

The main advantage of trading using opposite Bank of America and Data#3 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Data#3 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 Data#3 will offset losses from the drop in Data#3's long position.

The idea behind Bank of America and Data3 Limited 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.