Correlation Between Bank of America and Alumina Limited
Can any of the company-specific risk be diversified away by investing in both Bank of America and Alumina Limited 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 Alumina Limited into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of America and Alumina Limited PK, you can compare the effects of market volatilities on Bank of America and Alumina Limited 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 Alumina Limited. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Alumina Limited.
Diversification Opportunities for Bank of America and Alumina Limited
-0.63 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Bank and Alumina is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Alumina Limited PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alumina Limited PK 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 Bank of America are associated (or correlated) with Alumina Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alumina Limited PK has no effect on the direction of Bank of America i.e., Bank of America and Alumina Limited go up and down completely randomly.
Pair Corralation between Bank of America and Alumina Limited
Considering the 90-day investment horizon Bank of America is expected to generate 1.07 times less return on investment than Alumina Limited. But when comparing it to its historical volatility, Bank of America is 1.89 times less risky than Alumina Limited. It trades about 0.12 of its potential returns per unit of risk. Alumina Limited PK is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 303.00 in Alumina Limited PK on August 28, 2024 and sell it today you would earn a total of 66.00 from holding Alumina Limited PK or generate 21.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 61.24% |
| Values | Daily Returns |
Bank of America vs. Alumina Limited PK
Performance |
| Timeline |
| Bank of America |
| Alumina Limited PK |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Bank of America and Alumina Limited Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Alumina Limited
The main advantage of trading using opposite Bank of America and Alumina Limited positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Alumina Limited 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 Alumina Limited will offset losses from the drop in Alumina Limited's long position.| Bank of America vs. Nu Holdings | Bank of America vs. HSBC Holdings PLC | Bank of America vs. Bank of Montreal | Bank of America vs. Bank of Nova |
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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