Correlation Between Bank of America and Bucharest BET-NG

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Apply Can any of the company-specific risk be diversified away by investing in both Bank of America and Bucharest BET-NG 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 Bucharest BET-NG into the same portfolio, which is an essential part of the fundamental portfolio management process.

Diversification Opportunities for Bank of America and Bucharest BET-NG

Pair Corralation between Bank of America and Bucharest BET-NG

Bank of America  vs.  Bucharest BET-NG

Pair Trading with Bank of America and Bucharest BET-NG

The main advantage of trading using opposite Bank of America and Bucharest BET-NG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Bucharest BET-NG 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 Bucharest BET-NG will offset losses from the drop in Bucharest BET-NG's long position.The idea behind Bank of America and Bucharest BET-NG pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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