Correlation Between Bank of America and American Financial
Can any of the company-specific risk be diversified away by investing in both Bank of America and American Financial 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 American Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and American Financial Group, you can compare the effects of market volatilities on Bank of America and American Financial 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 American Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and American Financial.
Diversification Opportunities for Bank of America and American Financial
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and American is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and American Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Financial 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 American Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Financial has no effect on the direction of Bank of America i.e., Bank of America and American Financial go up and down completely randomly.
Pair Corralation between Bank of America and American Financial
Assuming the 90 days trading horizon Bank of America is expected to generate 1.94 times less return on investment than American Financial. But when comparing it to its historical volatility, Verizon Communications is 2.31 times less risky than American Financial. It trades about 0.55 of its potential returns per unit of risk. American Financial Group is currently generating about 0.46 of returns per unit of risk over similar time horizon. If you would invest 11,353 in American Financial Group on September 3, 2024 and sell it today you would earn a total of 2,647 from holding American Financial Group or generate 23.32% 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. American Financial Group
Performance |
| Timeline |
| Verizon Communications |
| American Financial |
Bank of America and American Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and American Financial
The main advantage of trading using opposite Bank of America and American Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, American Financial 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 American Financial will offset losses from the drop in American Financial's long position.| Bank of America vs. UNIVMUSIC GRPADR050 | Bank of America vs. ON SEMICONDUCTOR | Bank of America vs. CDN IMPERIAL BANK | Bank of America vs. CHIBA BANK |
| American Financial vs. The Peoples Insurance | American Financial vs. Loews Corp | American Financial vs. The Hanover Insurance | American Financial vs. Superior Plus Corp |
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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