Correlation Between Bank of AmericaCDR and Western Copper

Can any of the company-specific risk be diversified away by investing in both Bank of AmericaCDR and Western Copper 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 AmericaCDR and Western Copper 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 Western Copper and, you can compare the effects of market volatilities on Bank of AmericaCDR and Western Copper 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 AmericaCDR with a short position of Western Copper. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of AmericaCDR and Western Copper.

Diversification Opportunities for Bank of AmericaCDR and Western Copper

0.08

Correlation Coefficient

Bank of AmericaCDR  Western Copper

Significant diversification

The 3 months correlation between Bank and Western is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Western Copper and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Copper and Bank of AmericaCDR 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 Western Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Copper has no effect on the direction of Bank of AmericaCDR i.e., Bank of AmericaCDR and Western Copper go up and down completely randomly.

Pair Corralation between Bank of AmericaCDR and Western Copper

Assuming the 90 days trading horizon Bank of America is expected to under-perform the Western Copper. But the stock apears to be less risky and, when comparing its historical volatility, Bank of America is 1.36 times less risky than Western Copper. The stock trades about -0.02 of its potential returns per unit of risk. The Western Copper and is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  146.00  in Western Copper and on December 21, 2024 and sell it today you would earn a total of  17.00  from holding Western Copper and or generate 11.64% return on investment over 90 days.

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

Bank of America  vs.  Western Copper and

Bank of AmericaCDR

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 AmericaCDR is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Western Copper

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Copper and are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Western Copper displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of AmericaCDR and Western Copper

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

The idea behind Bank of America and Western Copper and 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.