Correlation Between Bank of America and PennantPark Investment

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

Diversification Opportunities for Bank of America and PennantPark Investment

0.47

Correlation Coefficient

Bank of America  PennantPark Investment

Very weak diversification

The 3 months correlation between Bank and PennantPark is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and PennantPark Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennantPark Investment 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 PennantPark Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennantPark Investment has no effect on the direction of Bank of America i.e., Bank of America and PennantPark Investment go up and down completely randomly.

Pair Corralation between Bank of America and PennantPark Investment

Assuming the 90 days trading horizon Bank of America is expected to generate 1.83 times less return on investment than PennantPark Investment. But when comparing it to its historical volatility, Bank of America is 2.28 times less risky than PennantPark Investment. It trades about 0.08 of its potential returns per unit of risk. PennantPark Investment is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  678.00  in PennantPark Investment on December 30, 2024 and sell it today you would earn a total of  28.00  from holding PennantPark Investment or generate 4.13% 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.  PennantPark Investment

Bank of America

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 6 (%) 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.

PennantPark Investment

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PennantPark Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, PennantPark Investment is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Bank of America and PennantPark Investment

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

The idea behind Bank of America and PennantPark Investment 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.