Correlation Between Bank of America and Apartment Investment

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

Diversification Opportunities for Bank of America and Apartment Investment

0.63

Correlation Coefficient

Bank of America  Apartment Investment

Poor diversification

The 3 months correlation between Bank and Apartment is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Apartment Investment and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apartment Investment and 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 Apartment Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apartment Investment and has no effect on the direction of Bank of America i.e., Bank of America and Apartment Investment go up and down completely randomly.

Pair Corralation between Bank of America and Apartment Investment

Assuming the 90 days trading horizon Bank of America is expected to under-perform the Apartment Investment. But the stock apears to be less risky and, when comparing its historical volatility, Bank of America is 1.76 times less risky than Apartment Investment. The stock trades about -0.05 of its potential returns per unit of risk. The Apartment Investment and is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5,000  in Apartment Investment and on September 25, 2024 and sell it today you would earn a total of  45.00  from holding Apartment Investment and or generate 0.9% return on investment over 90 days.

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

Bank of America  vs.  Apartment Investment and

Bank of America

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bank of America sustained solid returns over the last few months and may actually be approaching a breakup point.

Apartment Investment and

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Apartment Investment and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, Apartment Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank of America and Apartment Investment

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

The idea behind Bank of America and Apartment Investment and 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.