Correlation Between Bank of America and Bread Financial
Can any of the company-specific risk be diversified away by investing in both Bank of America and Bread 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 Bread Financial 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 Bread Financial Holdings, you can compare the effects of market volatilities on Bank of America and Bread 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 Bread Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Bread Financial.
Diversification Opportunities for Bank of America and Bread Financial
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and Bread is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Bread Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bread Financial Holdings 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 Bread Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bread Financial Holdings has no effect on the direction of Bank of America i.e., Bank of America and Bread Financial go up and down completely randomly.
Pair Corralation between Bank of America and Bread Financial
Considering the 90-day investment horizon Bank of America is expected to generate 0.45 times more return on investment than Bread Financial. However, Bank of America is 2.22 times less risky than Bread Financial. It trades about 0.17 of its potential returns per unit of risk. Bread Financial Holdings is currently generating about 0.02 per unit of risk. If you would invest 4,049 in Bank of America on August 30, 2024 and sell it today you would earn a total of 728.00 from holding Bank of America or generate 17.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Bread Financial Holdings
Performance |
| Timeline |
| Bank of America |
| Bread Financial Holdings |
Bank of America and Bread Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Bread Financial
The main advantage of trading using opposite Bank of America and Bread Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Bread 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 Bread Financial will offset losses from the drop in Bread Financial's long position.| Bank of America vs. RLJ Lodging Trust | Bank of America vs. Aquagold International | Bank of America vs. Stepstone Group | Bank of America vs. Morningstar Unconstrained Allocation |
| Bread Financial vs. SLM Corp | Bread Financial vs. Orix Corp Ads | Bread Financial vs. FirstCash | Bread Financial vs. Medallion Financial 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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