Correlation Between Bank of America and Aristocrat Leisure
Can any of the company-specific risk be diversified away by investing in both Bank of America and Aristocrat Leisure 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 Aristocrat Leisure into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and Aristocrat Leisure Limited, you can compare the effects of market volatilities on Bank of America and Aristocrat Leisure 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 Aristocrat Leisure. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Aristocrat Leisure.
Diversification Opportunities for Bank of America and Aristocrat Leisure
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Bank and Aristocrat is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Aristocrat Leisure Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aristocrat Leisure 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 Aristocrat Leisure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aristocrat Leisure has no effect on the direction of Bank of America i.e., Bank of America and Aristocrat Leisure go up and down completely randomly.
Pair Corralation between Bank of America and Aristocrat Leisure
Assuming the 90 days trading horizon Bank of America is expected to generate 2.48 times less return on investment than Aristocrat Leisure. But when comparing it to its historical volatility, Verizon Communications is 1.2 times less risky than Aristocrat Leisure. It trades about 0.11 of its potential returns per unit of risk. Aristocrat Leisure Limited is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 3,580 in Aristocrat Leisure Limited on August 25, 2024 and sell it today you would earn a total of 580.00 from holding Aristocrat Leisure Limited or generate 16.2% 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. Aristocrat Leisure Limited
Performance |
| Timeline |
| Verizon Communications |
| Aristocrat Leisure |
Bank of America and Aristocrat Leisure Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Aristocrat Leisure
The main advantage of trading using opposite Bank of America and Aristocrat Leisure positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Aristocrat Leisure 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 Aristocrat Leisure will offset losses from the drop in Aristocrat Leisure's long position.| Bank of America vs. Apple Inc | Bank of America vs. Apple Inc | Bank of America vs. Apple Inc | Bank of America vs. Apple Inc |
| Aristocrat Leisure vs. Scandinavian Tobacco Group | Aristocrat Leisure vs. Verizon Communications | Aristocrat Leisure vs. COMPUTERSHARE | Aristocrat Leisure vs. HEMISPHERE EGY |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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