Correlation Between Bank of America and BHP Group
Can any of the company-specific risk be diversified away by investing in both Bank of America and BHP Group 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 BHP Group 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 BHP Group Limited, you can compare the effects of market volatilities on Bank of America and BHP Group 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 BHP Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and BHP Group.
Diversification Opportunities for Bank of America and BHP Group
-0.7 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Bank and BHP is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and BHP Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHP Group Limited 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 BHP Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHP Group Limited has no effect on the direction of Bank of America i.e., Bank of America and BHP Group go up and down completely randomly.
Pair Corralation between Bank of America and BHP Group
Considering the 90-day investment horizon Bank of America is expected to generate 1.5 times less return on investment than BHP Group. But when comparing it to its historical volatility, Bank of America is 1.89 times less risky than BHP Group. It trades about 0.1 of its potential returns per unit of risk. BHP Group Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,441,332 in BHP Group Limited on August 27, 2024 and sell it today you would earn a total of 1,448,668 from holding BHP Group Limited or generate 100.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 97.59% |
| Values | Daily Returns |
Bank of America vs. BHP Group Limited
Performance |
| Timeline |
| Bank of America |
| BHP Group Limited |
Bank of America and BHP Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and BHP Group
The main advantage of trading using opposite Bank of America and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, BHP Group 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 BHP Group will offset losses from the drop in BHP Group'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 |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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