Correlation Between Bank of America and Clearway Energy
Can any of the company-specific risk be diversified away by investing in both Bank of America and Clearway Energy 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 Clearway Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and Clearway Energy, you can compare the effects of market volatilities on Bank of America and Clearway Energy 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 Clearway Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Clearway Energy.
Diversification Opportunities for Bank of America and Clearway Energy
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and Clearway is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Clearway Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clearway Energy 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 Clearway Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clearway Energy has no effect on the direction of Bank of America i.e., Bank of America and Clearway Energy go up and down completely randomly.
Pair Corralation between Bank of America and Clearway Energy
Assuming the 90 days trading horizon Verizon Communications is expected to under-perform the Clearway Energy. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 1.32 times less risky than Clearway Energy. The stock trades about -0.11 of its potential returns per unit of risk. The Clearway Energy is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 2,565 in Clearway Energy on September 19, 2024 and sell it today you would lose (32.00) from holding Clearway Energy or give up 1.25% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications vs. Clearway Energy
Performance |
| Timeline |
| Verizon Communications |
| Clearway Energy |
Bank of America and Clearway Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Clearway Energy
The main advantage of trading using opposite Bank of America and Clearway Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Clearway Energy 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 Clearway Energy will offset losses from the drop in Clearway Energy'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 |
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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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