Correlation Between Bank of America and HK Electric
Can any of the company-specific risk be diversified away by investing in both Bank of America and HK Electric 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 HK Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and HK Electric Investments, you can compare the effects of market volatilities on Bank of America and HK Electric 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 HK Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and HK Electric.
Diversification Opportunities for Bank of America and HK Electric
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Bank and HKT is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and HK Electric Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HK Electric Investments 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 HK Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HK Electric Investments has no effect on the direction of Bank of America i.e., Bank of America and HK Electric go up and down completely randomly.
Pair Corralation between Bank of America and HK Electric
Assuming the 90 days trading horizon Bank of America is expected to generate 5.22 times less return on investment than HK Electric. But when comparing it to its historical volatility, Verizon Communications is 2.28 times less risky than HK Electric. It trades about 0.05 of its potential returns per unit of risk. HK Electric Investments is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 43.00 in HK Electric Investments on September 19, 2024 and sell it today you would earn a total of 20.00 from holding HK Electric Investments or generate 46.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications vs. HK Electric Investments
Performance |
| Timeline |
| Verizon Communications |
| HK Electric Investments |
Bank of America and HK Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and HK Electric
The main advantage of trading using opposite Bank of America and HK Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, HK Electric 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 HK Electric will offset losses from the drop in HK Electric'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 |
| HK Electric vs. Apple Inc | HK Electric vs. Apple Inc | HK Electric vs. Apple Inc | HK Electric vs. Apple Inc |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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