Correlation Between Bank of America and ArcelorMittal
Can any of the company-specific risk be diversified away by investing in both Bank of America and ArcelorMittal 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 ArcelorMittal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and ArcelorMittal, you can compare the effects of market volatilities on Bank of America and ArcelorMittal 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 ArcelorMittal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and ArcelorMittal.
Diversification Opportunities for Bank of America and ArcelorMittal
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and ArcelorMittal is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and ArcelorMittal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ArcelorMittal 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 ArcelorMittal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ArcelorMittal has no effect on the direction of Bank of America i.e., Bank of America and ArcelorMittal go up and down completely randomly.
Pair Corralation between Bank of America and ArcelorMittal
Assuming the 90 days trading horizon Bank of America is expected to generate 2.2 times less return on investment than ArcelorMittal. But when comparing it to its historical volatility, Verizon Communications is 2.69 times less risky than ArcelorMittal. It trades about 0.28 of its potential returns per unit of risk. ArcelorMittal is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 2,440 in ArcelorMittal on December 8, 2024 and sell it today you would earn a total of 520.00 from holding ArcelorMittal or generate 21.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications vs. ArcelorMittal
Performance |
| Timeline |
| Verizon Communications |
| ArcelorMittal |
Bank of America and ArcelorMittal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and ArcelorMittal
The main advantage of trading using opposite Bank of America and ArcelorMittal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, ArcelorMittal 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 ArcelorMittal will offset losses from the drop in ArcelorMittal's long position.| Bank of America vs. COMMERCIAL VEHICLE | ||
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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 CEOs Directory module to screen CEOs from public companies around the world.
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