Correlation Between Bank of America and AutoZone
Can any of the company-specific risk be diversified away by investing in both Bank of America and AutoZone 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 AutoZone into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and AutoZone, you can compare the effects of market volatilities on Bank of America and AutoZone 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 AutoZone. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and AutoZone.
Diversification Opportunities for Bank of America and AutoZone
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Bank and AutoZone is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and AutoZone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoZone 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 AutoZone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AutoZone has no effect on the direction of Bank of America i.e., Bank of America and AutoZone go up and down completely randomly.
Pair Corralation between Bank of America and AutoZone
Assuming the 90 days trading horizon Bank of America is expected to generate 1.35 times less return on investment than AutoZone. But when comparing it to its historical volatility, Verizon Communications is 1.04 times less risky than AutoZone. It trades about 0.07 of its potential returns per unit of risk. AutoZone is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 234,600 in AutoZone on September 19, 2024 and sell it today you would earn a total of 81,300 from holding AutoZone or generate 34.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.6% |
| Values | Daily Returns |
Verizon Communications vs. AutoZone
Performance |
| Timeline |
| Verizon Communications |
| AutoZone |
Bank of America and AutoZone Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and AutoZone
The main advantage of trading using opposite Bank of America and AutoZone positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, AutoZone 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 AutoZone will offset losses from the drop in AutoZone'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 |
| AutoZone vs. Superior Plus Corp | AutoZone vs. SIVERS SEMICONDUCTORS AB | AutoZone vs. NorAm Drilling AS | AutoZone vs. Norsk Hydro ASA |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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