Correlation Between Bank of America and Bodycote PLC
Can any of the company-specific risk be diversified away by investing in both Bank of America and Bodycote PLC 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 Bodycote PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and Bodycote PLC, you can compare the effects of market volatilities on Bank of America and Bodycote PLC 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 Bodycote PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Bodycote PLC.
Diversification Opportunities for Bank of America and Bodycote PLC
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Bank and Bodycote is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Bodycote PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bodycote PLC 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 Verizon Communications are associated (or correlated) with Bodycote PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bodycote PLC has no effect on the direction of Bank of America i.e., Bank of America and Bodycote PLC go up and down completely randomly.
Pair Corralation between Bank of America and Bodycote PLC
Assuming the 90 days trading horizon Verizon Communications is expected to generate 0.57 times more return on investment than Bodycote PLC. However, Verizon Communications is 1.74 times less risky than Bodycote PLC. It trades about 0.07 of its potential returns per unit of risk. Bodycote PLC is currently generating about 0.04 per unit of risk. If you would invest 3,216 in Verizon Communications on September 12, 2024 and sell it today you would earn a total of 778.00 from holding Verizon Communications or generate 24.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications vs. Bodycote PLC
Performance |
| Timeline |
| Verizon Communications |
| Bodycote PLC |
Bank of America and Bodycote PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Bodycote PLC
The main advantage of trading using opposite Bank of America and Bodycote PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Bodycote PLC 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 Bodycote PLC will offset losses from the drop in Bodycote PLC's long position.| Bank of America vs. Cars Inc | Bank of America vs. Australian Agricultural | Bank of America vs. CarsalesCom | Bank of America vs. ALEFARM BREWING DK 05 |
| Bodycote PLC vs. Spirent Communications plc | Bodycote PLC vs. Verizon Communications | Bodycote PLC vs. Computer And Technologies | Bodycote PLC vs. United Internet AG |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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