Correlation Between Bank of America and Spirent Communications
Can any of the company-specific risk be diversified away by investing in both Bank of America and Spirent Communications 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 Spirent Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and Spirent Communications plc, you can compare the effects of market volatilities on Bank of America and Spirent Communications 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 Spirent Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Spirent Communications.
Diversification Opportunities for Bank of America and Spirent Communications
-0.11 | Correlation Coefficient |
Good diversification
The 3 months correlation between Bank and Spirent is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications 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 Spirent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirent Communications has no effect on the direction of Bank of America i.e., Bank of America and Spirent Communications go up and down completely randomly.
Pair Corralation between Bank of America and Spirent Communications
Assuming the 90 days trading horizon Verizon Communications is expected to generate 1.29 times more return on investment than Spirent Communications. However, Bank of America is 1.29 times more volatile than Spirent Communications plc. It trades about 0.1 of its potential returns per unit of risk. Spirent Communications plc is currently generating about 0.01 per unit of risk. If you would invest 3,955 in Verizon Communications on August 28, 2024 and sell it today you would earn a total of 218.00 from holding Verizon Communications or generate 5.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications vs. Spirent Communications plc
Performance |
| Timeline |
| Verizon Communications |
| Spirent Communications |
Bank of America and Spirent Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Spirent Communications
The main advantage of trading using opposite Bank of America and Spirent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Spirent Communications 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 Spirent Communications will offset losses from the drop in Spirent Communications' long position.| Bank of America vs. Apple Inc | Bank of America vs. Apple Inc | Bank of America vs. Apple Inc | Bank of America vs. Microsoft |
| Spirent Communications vs. T Mobile | Spirent Communications vs. ATT Inc | Spirent Communications vs. Deutsche Telekom 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 Stocks Directory module to find actively traded stocks across global markets.
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