Correlation Between Bank of America and Rocky Mountain

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

Diversification Opportunities for Bank of America and Rocky Mountain

-0.38

Correlation Coefficient

Bank of America  Rocky Mountain

Very good diversification

The 3 months correlation between Bank and Rocky is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Rocky Mountain Liquor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Mountain Liquor 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 Rocky Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocky Mountain Liquor has no effect on the direction of Bank of America i.e., Bank of America and Rocky Mountain go up and down completely randomly.

Pair Corralation between Bank of America and Rocky Mountain

Assuming the 90 days trading horizon Bank of America is expected to generate 0.6 times more return on investment than Rocky Mountain. However, Bank of America is 1.68 times less risky than Rocky Mountain. It trades about 0.17 of its potential returns per unit of risk. Rocky Mountain Liquor is currently generating about 0.01 per unit of risk. If you would invest  2,108  in Bank of America on August 31, 2024 and sell it today you would earn a total of  392.00  from holding Bank of America or generate 18.6% return on investment over 90 days.

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

Bank of America  vs.  Rocky Mountain Liquor

Bank of America

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.

Rocky Mountain Liquor

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Mountain Liquor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Rocky Mountain 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 Rocky Mountain

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

The idea behind Bank of America and Rocky Mountain Liquor 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.