Correlation Between Bank of America and Phillips

Can any of the company-specific risk be diversified away by investing in both Bank of America and Phillips 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 Phillips 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 Phillips 66, you can compare the effects of market volatilities on Bank of America and Phillips 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 Phillips. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Phillips.

Diversification Opportunities for Bank of America and Phillips

0.16

Correlation Coefficient

Bank of America  Phillips

Average diversification

The 3 months correlation between Bank and Phillips is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Phillips 66 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phillips 66 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 Phillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phillips 66 has no effect on the direction of Bank of America i.e., Bank of America and Phillips go up and down completely randomly.

Pair Corralation between Bank of America and Phillips

Assuming the 90 days trading horizon Bank of America is expected to generate 0.84 times more return on investment than Phillips. However, Bank of America is 1.19 times less risky than Phillips. It trades about 0.16 of its potential returns per unit of risk. Phillips 66 is currently generating about 0.04 per unit of risk. If you would invest  3,957  in Bank of America on October 9, 2024 and sell it today you would earn a total of  3,069  from holding Bank of America or generate 77.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	73.39%
Values	Daily Returns

Bank of America  vs.  Phillips 66

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.

Phillips 66

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Phillips 66 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Bank of America and Phillips

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

The idea behind Bank of America and Phillips 66 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.