Correlation Between Bank of America and Citizens Financial
Can any of the company-specific risk be diversified away by investing in both Bank of America and Citizens Financial 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 Citizens Financial 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 Citizens Financial Group, you can compare the effects of market volatilities on Bank of America and Citizens Financial 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 Citizens Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Citizens Financial.
Diversification Opportunities for Bank of America and Citizens Financial
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Bank and Citizens is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Citizens Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citizens Financial 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 Citizens Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citizens Financial has no effect on the direction of Bank of America i.e., Bank of America and Citizens Financial go up and down completely randomly.
Pair Corralation between Bank of America and Citizens Financial
Assuming the 90 days trading horizon Bank of America is expected to generate 1.12 times less return on investment than Citizens Financial. But when comparing it to its historical volatility, Bank of America is 2.05 times less risky than Citizens Financial. It trades about 0.05 of its potential returns per unit of risk. Citizens Financial Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,787 in Citizens Financial Group on August 30, 2024 and sell it today you would earn a total of 279.00 from holding Citizens Financial Group or generate 15.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Citizens Financial Group
Performance |
| Timeline |
| Bank of America |
| Citizens Financial |
Bank of America and Citizens Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Citizens Financial
The main advantage of trading using opposite Bank of America and Citizens Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Citizens Financial 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 Citizens Financial will offset losses from the drop in Citizens Financial's long position.| Bank of America vs. JPMorgan Chase Co | Bank of America vs. Wells Fargo | Bank of America vs. JPMorgan Chase Co |
| Citizens Financial vs. Capital One Financial | Citizens Financial vs. Capital One Financial | Citizens Financial vs. Bank of America | Citizens Financial vs. KeyCorp |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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