Correlation Between Bank of America and LOWES

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

Diversification Opportunities for Bank of America and LOWES

0.42

Correlation Coefficient

Bank of America  LOWES

Very weak diversification

The 3 months correlation between Bank and LOWES is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and LOWES PANIES INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOWES PANIES INC 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 LOWES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOWES PANIES INC has no effect on the direction of Bank of America i.e., Bank of America and LOWES go up and down completely randomly.

Pair Corralation between Bank of America and LOWES

Assuming the 90 days trading horizon Bank of America is expected to generate 1.41 times less return on investment than LOWES. But when comparing it to its historical volatility, Bank of America is 1.61 times less risky than LOWES. It trades about 0.08 of its potential returns per unit of risk. LOWES PANIES INC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  8,370  in LOWES PANIES INC on December 30, 2024 and sell it today you would earn a total of  285.00  from holding LOWES PANIES INC or generate 3.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

Bank of America  vs.  LOWES PANIES INC

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.

LOWES PANIES INC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LOWES PANIES INC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, LOWES is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank of America and LOWES

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

The idea behind Bank of America and LOWES PANIES INC 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.