Correlation Between Bank of America and US Bancorp
Can any of the company-specific risk be diversified away by investing in both Bank of America and US Bancorp 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 US Bancorp 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 US Bancorp, you can compare the effects of market volatilities on Bank of America and US Bancorp 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 US Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and US Bancorp.
Diversification Opportunities for Bank of America and US Bancorp
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bank and USB-PQ is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Bank of America i.e., Bank of America and US Bancorp go up and down completely randomly.
Pair Corralation between Bank of America and US Bancorp
Assuming the 90 days trading horizon Bank of America is expected to under-perform the US Bancorp. But the preferred stock apears to be less risky and, when comparing its historical volatility, Bank of America is 1.23 times less risky than US Bancorp. The preferred stock trades about -0.11 of its potential returns per unit of risk. The US Bancorp is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest 1,771 in US Bancorp on August 27, 2024 and sell it today you would lose (33.00) from holding US Bancorp or give up 1.86% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. US Bancorp
Performance |
| Timeline |
| Bank of America |
| US Bancorp |
Bank of America and US Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and US Bancorp
The main advantage of trading using opposite Bank of America and US Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, US Bancorp 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 US Bancorp will offset losses from the drop in US Bancorp's long position.| Bank of America vs. Bank of America | Bank of America vs. Bank of America | Bank of America vs. JPMorgan Chase Co | Bank of America vs. Wells Fargo |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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