Correlation Between Bank of America and WESTERN DIGITAL
Can any of the company-specific risk be diversified away by investing in both Bank of America and WESTERN DIGITAL 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 WESTERN DIGITAL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and WESTERN DIGITAL, you can compare the effects of market volatilities on Bank of America and WESTERN DIGITAL 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 WESTERN DIGITAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and WESTERN DIGITAL.
Diversification Opportunities for Bank of America and WESTERN DIGITAL
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and WESTERN is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and WESTERN DIGITAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESTERN DIGITAL 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 WESTERN DIGITAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESTERN DIGITAL has no effect on the direction of Bank of America i.e., Bank of America and WESTERN DIGITAL go up and down completely randomly.
Pair Corralation between Bank of America and WESTERN DIGITAL
Assuming the 90 days trading horizon Bank of America is expected to generate 1.48 times less return on investment than WESTERN DIGITAL. But when comparing it to its historical volatility, Verizon Communications is 2.68 times less risky than WESTERN DIGITAL. It trades about 0.49 of its potential returns per unit of risk. WESTERN DIGITAL is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 5,992 in WESTERN DIGITAL on September 4, 2024 and sell it today you would earn a total of 966.00 from holding WESTERN DIGITAL or generate 16.12% 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. WESTERN DIGITAL
Performance |
| Timeline |
| Verizon Communications |
| WESTERN DIGITAL |
Bank of America and WESTERN DIGITAL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and WESTERN DIGITAL
The main advantage of trading using opposite Bank of America and WESTERN DIGITAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, WESTERN DIGITAL 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 WESTERN DIGITAL will offset losses from the drop in WESTERN DIGITAL's long position.| Bank of America vs. Lifeway Foods | Bank of America vs. PARKEN Sport Entertainment | Bank of America vs. Flutter Entertainment PLC | Bank of America vs. REMEDY ENTERTAINMENT OYJ |
| WESTERN DIGITAL vs. VARIOUS EATERIES LS | WESTERN DIGITAL vs. YATRA ONLINE DL 0001 | WESTERN DIGITAL vs. Bumrungrad Hospital Public | WESTERN DIGITAL vs. ETFS Coffee ETC |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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