Correlation Between Visa and Bank of America

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

Diversification Opportunities for Visa and Bank of America

0.92

Correlation Coefficient

Visa  Bank of America

Almost no diversification

The 3 months correlation between Visa and Bank is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A 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 Visa 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 Visa Class A 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 Visa i.e., Visa and Bank of America go up and down completely randomly.

Pair Corralation between Visa and Bank of America

Taking into account the 90-day investment horizon Visa is expected to generate 1.0 times less return on investment than Bank of America. But when comparing it to its historical volatility, Visa Class A is 1.56 times less risky than Bank of America. It trades about 0.09 of its potential returns per unit of risk. Bank of America is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,884  in Bank of America on September 16, 2024 and sell it today you would earn a total of  1,469  from holding Bank of America or generate 50.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.02%
Values	Daily Returns

Visa Class A  vs.  Bank of America

Visa Class A

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bank of America

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental drivers, Bank of America unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Bank of America

The main advantage of trading using opposite Visa and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.