Correlation Between Bank of America and Griffon

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

Diversification Opportunities for Bank of America and Griffon

0.41

Correlation Coefficient

Bank of America  Griffon

Very weak diversification

The 3 months correlation between Bank and Griffon is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Griffon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Griffon 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 Griffon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Griffon has no effect on the direction of Bank of America i.e., Bank of America and Griffon go up and down completely randomly.

Pair Corralation between Bank of America and Griffon

Assuming the 90 days trading horizon Bank of America is expected to generate 0.26 times more return on investment than Griffon. However, Bank of America is 3.87 times less risky than Griffon. It trades about 0.05 of its potential returns per unit of risk. Griffon is currently generating about -0.1 per unit of risk. If you would invest  2,259  in Bank of America on December 2, 2024 and sell it today you would earn a total of  36.00  from holding Bank of America or generate 1.59% return on investment over 90 days.

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

Bank of America  vs.  Griffon

Bank of America

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 4 (%) 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.

Griffon

Risk-Adjusted Performance

Very Weak

Over the last 90 days Griffon has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Bank of America and Griffon

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

The idea behind Bank of America and Griffon 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.