Correlation Between Bank of America and JPMorgan Chase
Can any of the company-specific risk be diversified away by investing in both Bank of America and JPMorgan Chase 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 JPMorgan Chase 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 JPMorgan Chase Co, you can compare the effects of market volatilities on Bank of America and JPMorgan Chase 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 JPMorgan Chase. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and JPMorgan Chase.
Diversification Opportunities for Bank of America and JPMorgan Chase
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Bank and JPMorgan is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and JPMorgan Chase Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JPMorgan Chase 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 JPMorgan Chase. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JPMorgan Chase has no effect on the direction of Bank of America i.e., Bank of America and JPMorgan Chase go up and down completely randomly.
Pair Corralation between Bank of America and JPMorgan Chase
Assuming the 90 days trading horizon Bank of America is expected to under-perform the JPMorgan Chase. But the preferred stock apears to be less risky and, when comparing its historical volatility, Bank of America is 1.11 times less risky than JPMorgan Chase. The preferred stock trades about -0.14 of its potential returns per unit of risk. The JPMorgan Chase Co is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest 1,991 in JPMorgan Chase Co on August 27, 2024 and sell it today you would lose (47.00) from holding JPMorgan Chase Co or give up 2.36% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. JPMorgan Chase Co
Performance |
| Timeline |
| Bank of America |
| JPMorgan Chase |
Bank of America and JPMorgan Chase Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and JPMorgan Chase
The main advantage of trading using opposite Bank of America and JPMorgan Chase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, JPMorgan Chase 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 JPMorgan Chase will offset losses from the drop in JPMorgan Chase's long position.The idea behind Bank of America and JPMorgan Chase Co 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.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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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