Correlation Between Bank of America and Alaris Equity

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

Diversification Opportunities for Bank of America and Alaris Equity

0.84

Correlation Coefficient

Bank of America  Alaris Equity

Very poor diversification

The 3 months correlation between Bank and Alaris is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Alaris Equity Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alaris Equity Partners 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 Alaris Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alaris Equity Partners has no effect on the direction of Bank of America i.e., Bank of America and Alaris Equity go up and down completely randomly.

Pair Corralation between Bank of America and Alaris Equity

Assuming the 90 days trading horizon Bank of America is expected to generate 1.34 times less return on investment than Alaris Equity. In addition to that, Bank of America is 1.4 times more volatile than Alaris Equity Partners. It trades about 0.07 of its total potential returns per unit of risk. Alaris Equity Partners is currently generating about 0.13 per unit of volatility. If you would invest  1,490  in Alaris Equity Partners on October 13, 2024 and sell it today you would earn a total of  325.00  from holding Alaris Equity Partners or generate 21.81% return on investment over 90 days.

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

Bank of America  vs.  Alaris Equity Partners

Bank of America

Risk-Adjusted Performance

6 of 100

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. In spite of rather unfluctuating technical and fundamental indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Alaris Equity Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alaris Equity Partners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Alaris Equity is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Bank of America and Alaris Equity

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

The idea behind Bank of America and Alaris Equity Partners 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.