Correlation Between Bank Central and Bank of America

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

Diversification Opportunities for Bank Central and Bank of America

-0.27

Correlation Coefficient

Bank Central  Bank of America

Very good diversification

The 3 months correlation between Bank and Bank is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Bank Central Asia 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 Bank Central 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 Central Asia 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 Bank Central i.e., Bank Central and Bank of America go up and down completely randomly.

Pair Corralation between Bank Central and Bank of America

Assuming the 90 days horizon Bank Central Asia is expected to under-perform the Bank of America. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bank Central Asia is 6.88 times less risky than Bank of America. The pink sheet trades about -0.17 of its potential returns per unit of risk. The Bank of America is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  19,000  in Bank of America on October 7, 2024 and sell it today you would earn a total of  5,450  from holding Bank of America or generate 28.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Bank Central Asia  vs.  Bank of America

Bank Central Asia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Central Asia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Bank of America

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Bank of America reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Central and Bank of America

The main advantage of trading using opposite Bank Central and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank Central 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 Bank Central Asia 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.