Correlation Between Bank of America and Charles Schwab
Can any of the company-specific risk be diversified away by investing in both Bank of America and Charles Schwab 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 Charles Schwab 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 The Charles Schwab, you can compare the effects of market volatilities on Bank of America and Charles Schwab 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 Charles Schwab. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Charles Schwab.
Diversification Opportunities for Bank of America and Charles Schwab
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and Charles is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and The Charles Schwab in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charles Schwab 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 Charles Schwab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charles Schwab has no effect on the direction of Bank of America i.e., Bank of America and Charles Schwab go up and down completely randomly.
Pair Corralation between Bank of America and Charles Schwab
Assuming the 90 days trading horizon Bank of America is expected to generate 1.87 times less return on investment than Charles Schwab. But when comparing it to its historical volatility, Bank of America is 1.07 times less risky than Charles Schwab. It trades about 0.05 of its potential returns per unit of risk. The Charles Schwab is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,956 in The Charles Schwab on November 9, 2024 and sell it today you would earn a total of 34.00 from holding The Charles Schwab or generate 1.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. The Charles Schwab
Performance |
| Timeline |
| Bank of America |
| Charles Schwab |
Bank of America and Charles Schwab Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Charles Schwab
The main advantage of trading using opposite Bank of America and Charles Schwab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Charles Schwab 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 Charles Schwab will offset losses from the drop in Charles Schwab's long position.| Bank of America vs. Bank of America | Bank of America vs. JPMorgan Chase Co | Bank of America vs. Wells Fargo | Bank of America vs. JPMorgan Chase Co |
| Charles Schwab vs. Goldman Sachs Group | Charles Schwab vs. Moelis Co | Charles Schwab vs. Morgan Stanley | Charles Schwab vs. Stifel Financial |
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 Stocks Directory module to find actively traded stocks across global markets.
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