Correlation Between First Republic and Bank of America

Can any of the company-specific risk be diversified away by investing in both First Republic and Bank of America 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 First Republic and Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Republic Bank and Bank of America, you can compare the effects of market volatilities on First Republic and Bank of America 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 First Republic with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Republic and Bank of America.

Diversification Opportunities for First Republic and Bank of America

0.0

Correlation Coefficient

First Republic  Bank of America

Pay attention - limited upside

The 3 months correlation between First and Bank is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding First Republic Bank and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America and First Republic 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 First Republic Bank are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of First Republic i.e., First Republic and Bank of America go up and down completely randomly.

Pair Corralation between First Republic and Bank of America

Assuming the 90 days trading horizon First Republic Bank is expected to under-perform the Bank of America. In addition to that, First Republic is 3.62 times more volatile than Bank of America. It trades about -0.08 of its total potential returns per unit of risk. Bank of America is currently generating about 0.05 per unit of volatility. If you would invest  62,259  in Bank of America on September 27, 2024 and sell it today you would earn a total of  27,621  from holding Bank of America or generate 44.36% return on investment over 90 days.

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

First Republic Bank  vs.  Bank of America

First Republic Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Republic Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, First Republic is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Bank of America

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Bank of America showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Republic and Bank of America

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

The idea behind First Republic Bank and Bank of America 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.