Correlation Between Alphabet and Bank of America

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

Diversification Opportunities for Alphabet and Bank of America

-0.54

Correlation Coefficient

Alphabet  Bank of America

Excellent diversification

The 3 months correlation between Alphabet and Bank is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C 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 Alphabet 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 Alphabet Inc Class C 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 Alphabet i.e., Alphabet and Bank of America go up and down completely randomly.

Pair Corralation between Alphabet and Bank of America

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.74 times more return on investment than Bank of America. However, Alphabet is 1.74 times more volatile than Bank of America. It trades about 0.08 of its potential returns per unit of risk. Bank of America is currently generating about -0.04 per unit of risk. If you would invest  15,840  in Alphabet Inc Class C on September 2, 2024 and sell it today you would earn a total of  1,209  from holding Alphabet Inc Class C or generate 7.63% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  Bank of America

Alphabet Class C

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bank of America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of America has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, Bank of America is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Alphabet and Bank of America

The main advantage of trading using opposite Alphabet and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C 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.

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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.