Correlation Between Bank of America and Companhia

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

Diversification Opportunities for Bank of America and Companhia

0.13

Correlation Coefficient

Bank of America  Companhia

Average diversification

The 3 months correlation between Bank and Companhia is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Companhia de Fiacao in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia de Fiacao 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 Companhia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia de Fiacao has no effect on the direction of Bank of America i.e., Bank of America and Companhia go up and down completely randomly.

Pair Corralation between Bank of America and Companhia

Assuming the 90 days trading horizon Bank of America is expected to under-perform the Companhia. But the stock apears to be less risky and, when comparing its historical volatility, Bank of America is 2.67 times less risky than Companhia. The stock trades about -0.02 of its potential returns per unit of risk. The Companhia de Fiacao is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  2,396  in Companhia de Fiacao on October 10, 2024 and sell it today you would earn a total of  654.00  from holding Companhia de Fiacao or generate 27.3% return on investment over 90 days.

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

Bank of America  vs.  Companhia de Fiacao

Bank of America

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 18 (%) 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.

Companhia de Fiacao

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia de Fiacao are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Companhia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and Companhia

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

The idea behind Bank of America and Companhia de Fiacao 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..