Correlation Between Bank of America and SHELL PLC
Can any of the company-specific risk be diversified away by investing in both Bank of America and SHELL PLC 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 SHELL PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and SHELL PLC WI, you can compare the effects of market volatilities on Bank of America and SHELL PLC 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 SHELL PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and SHELL PLC.
Diversification Opportunities for Bank of America and SHELL PLC
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Bank and SHELL is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and SHELL PLC WI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SHELL PLC WI 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 SHELL PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SHELL PLC WI has no effect on the direction of Bank of America i.e., Bank of America and SHELL PLC go up and down completely randomly.
Pair Corralation between Bank of America and SHELL PLC
Assuming the 90 days trading horizon Bank of America is expected to generate 1.63 times less return on investment than SHELL PLC. But when comparing it to its historical volatility, Verizon Communications is 1.05 times less risky than SHELL PLC. It trades about 0.1 of its potential returns per unit of risk. SHELL PLC WI is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 5,835 in SHELL PLC WI on August 27, 2024 and sell it today you would earn a total of 465.00 from holding SHELL PLC WI or generate 7.97% 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. SHELL PLC WI
Performance |
| Timeline |
| Verizon Communications |
| SHELL PLC WI |
Bank of America and SHELL PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and SHELL PLC
The main advantage of trading using opposite Bank of America and SHELL PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, SHELL PLC 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 SHELL PLC will offset losses from the drop in SHELL PLC's long position.| Bank of America vs. MSAD INSURANCE | Bank of America vs. Selective Insurance Group | Bank of America vs. LIFENET INSURANCE CO | Bank of America vs. Singapore Telecommunications Limited |
| SHELL PLC vs. Microchip Technology Incorporated | SHELL PLC vs. Vishay Intertechnology | SHELL PLC vs. WisdomTree Investments | SHELL PLC vs. Postal Savings Bank |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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