Correlation Between Bank of America and IGM Financial

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

Diversification Opportunities for Bank of America and IGM Financial

0.87

Correlation Coefficient

Bank of America  IGM Financial

Very poor diversification

The 3 months correlation between Bank and IGM is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and IGM Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IGM Financial 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 IGM Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IGM Financial has no effect on the direction of Bank of America i.e., Bank of America and IGM Financial go up and down completely randomly.

Pair Corralation between Bank of America and IGM Financial

Assuming the 90 days trading horizon Bank of America is expected to generate 0.95 times more return on investment than IGM Financial. However, Bank of America is 1.05 times less risky than IGM Financial. It trades about -0.08 of its potential returns per unit of risk. IGM Financial is currently generating about -0.23 per unit of risk. If you would invest  2,397  in Bank of America on October 13, 2024 and sell it today you would lose (50.00) from holding Bank of America or give up 2.09% of portfolio value over 90 days.

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

Bank of America  vs.  IGM Financial

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.

IGM Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IGM Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, IGM Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Bank of America and IGM Financial

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

The idea behind Bank of America and IGM Financial 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.