Correlation Between Bank of America and Secure Energy

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

Diversification Opportunities for Bank of America and Secure Energy

0.26

Correlation Coefficient

Bank of America  Secure Energy

Modest diversification

The 3 months correlation between Bank and Secure is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Secure Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Secure Energy Services 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 Secure Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Secure Energy Services has no effect on the direction of Bank of America i.e., Bank of America and Secure Energy go up and down completely randomly.

Pair Corralation between Bank of America and Secure Energy

Assuming the 90 days trading horizon Bank of America is expected to under-perform the Secure Energy. In addition to that, Bank of America is 1.14 times more volatile than Secure Energy Services. It trades about -0.05 of its total potential returns per unit of risk. Secure Energy Services is currently generating about 0.0 per unit of volatility. If you would invest  1,594  in Secure Energy Services on December 30, 2024 and sell it today you would lose (10.00) from holding Secure Energy Services or give up 0.63% of portfolio value over 90 days.

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

Bank of America  vs.  Secure Energy Services

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Secure Energy Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Secure Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Secure Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Bank of America and Secure Energy

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

The idea behind Bank of America and Secure Energy Services 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.