Correlation Between Bank of America and Addus HomeCare

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

Diversification Opportunities for Bank of America and Addus HomeCare

0.81

Correlation Coefficient

Bank of America  Addus HomeCare

Very poor diversification

The 3 months correlation between Bank and Addus is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Addus HomeCare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Addus HomeCare 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 Addus HomeCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Addus HomeCare has no effect on the direction of Bank of America i.e., Bank of America and Addus HomeCare go up and down completely randomly.

Pair Corralation between Bank of America and Addus HomeCare

Assuming the 90 days horizon Bank of America is expected to generate 0.83 times more return on investment than Addus HomeCare. However, Bank of America is 1.21 times less risky than Addus HomeCare. It trades about -0.06 of its potential returns per unit of risk. Addus HomeCare is currently generating about -0.27 per unit of risk. If you would invest  4,245  in Bank of America on December 25, 2024 and sell it today you would lose (341.00) from holding Bank of America or give up 8.03% of portfolio value over 90 days.

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

Bank of America  vs.  Addus HomeCare

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. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Addus HomeCare

Risk-Adjusted Performance

Very Weak

Over the last 90 days Addus HomeCare has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Bank of America and Addus HomeCare

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

The idea behind Bank of America and Addus HomeCare 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.