Correlation Between Bank of America and Truist Financial
Can any of the company-specific risk be diversified away by investing in both Bank of America and Truist 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 Truist 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 Truist Financial, you can compare the effects of market volatilities on Bank of America and Truist 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 Truist Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Truist Financial.
Diversification Opportunities for Bank of America and Truist Financial
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Bank and Truist is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Truist Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Truist 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 Truist Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Truist Financial has no effect on the direction of Bank of America i.e., Bank of America and Truist Financial go up and down completely randomly.
Pair Corralation between Bank of America and Truist Financial
Assuming the 90 days trading horizon Bank of America is expected to generate 0.72 times more return on investment than Truist Financial. However, Bank of America is 1.39 times less risky than Truist Financial. It trades about 0.05 of its potential returns per unit of risk. Truist Financial is currently generating about 0.03 per unit of risk. If you would invest 1,622 in Bank of America on August 30, 2024 and sell it today you would earn a total of 322.00 from holding Bank of America or generate 19.85% 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. Truist Financial
Performance |
| Timeline |
| Bank of America |
| Truist Financial |
Bank of America and Truist Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Truist Financial
The main advantage of trading using opposite Bank of America and Truist Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Truist 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 Truist Financial will offset losses from the drop in Truist Financial's long position.| Bank of America vs. JPMorgan Chase Co | Bank of America vs. Wells Fargo | Bank of America vs. JPMorgan Chase Co |
| Truist Financial vs. Truist Financial | Truist Financial vs. MetLife Preferred Stock | Truist Financial vs. US Bancorp |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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