Correlation Between Synchrony Financial and Bank of America

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

Diversification Opportunities for Synchrony Financial and Bank of America

0.27

Correlation Coefficient

Synchrony Financial  Bank of America

Modest diversification

The 3 months correlation between Synchrony and Bank is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Synchrony Financial and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Synchrony Financial 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 Synchrony Financial 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 Verizon Communications has no effect on the direction of Synchrony Financial i.e., Synchrony Financial and Bank of America go up and down completely randomly.

Pair Corralation between Synchrony Financial and Bank of America

Assuming the 90 days horizon Synchrony Financial is expected to generate 1.39 times more return on investment than Bank of America. However, Synchrony Financial is 1.39 times more volatile than Verizon Communications. It trades about 0.01 of its potential returns per unit of risk. Verizon Communications is currently generating about -0.28 per unit of risk. If you would invest  6,426  in Synchrony Financial on October 10, 2024 and sell it today you would earn a total of  10.00  from holding Synchrony Financial or generate 0.16% return on investment over 90 days.

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

Synchrony Financial  vs.  Verizon Communications

Synchrony Financial

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Synchrony Financial are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Synchrony Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Bank of America is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Synchrony Financial and Bank of America

The main advantage of trading using opposite Synchrony Financial and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Synchrony Financial 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 Synchrony Financial and Verizon Communications 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.