Correlation Between Bank of America and ROK Resources

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

Diversification Opportunities for Bank of America and ROK Resources

0.34

Correlation Coefficient

Bank of America  ROK Resources

Weak diversification

The 3 months correlation between Bank and ROK is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and ROK Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ROK Resources 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 ROK Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ROK Resources has no effect on the direction of Bank of America i.e., Bank of America and ROK Resources go up and down completely randomly.

Pair Corralation between Bank of America and ROK Resources

Assuming the 90 days trading horizon Bank of America is expected to under-perform the ROK Resources. But the stock apears to be less risky and, when comparing its historical volatility, Bank of America is 2.05 times less risky than ROK Resources. The stock trades about -0.03 of its potential returns per unit of risk. The ROK Resources is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  16.00  in ROK Resources on December 19, 2024 and sell it today you would earn a total of  0.00  from holding ROK Resources or generate 0.0% return on investment over 90 days.

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

Bank of America  vs.  ROK Resources

Bank of America

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Bank of America is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

ROK Resources

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ROK Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, ROK Resources is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Bank of America and ROK Resources

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

The idea behind Bank of America and ROK Resources 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.