Correlation Between Bank of America and Diamond Hill
Can any of the company-specific risk be diversified away by investing in both Bank of America and Diamond Hill 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 Diamond Hill 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 Diamond Hill Long Short, you can compare the effects of market volatilities on Bank of America and Diamond Hill 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 Diamond Hill. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Diamond Hill.
Diversification Opportunities for Bank of America and Diamond Hill
-0.29 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Bank and Diamond is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Diamond Hill Long Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Long 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 Diamond Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Hill Long has no effect on the direction of Bank of America i.e., Bank of America and Diamond Hill go up and down completely randomly.
Pair Corralation between Bank of America and Diamond Hill
Considering the 90-day investment horizon Bank of America is expected to generate 3.34 times more return on investment than Diamond Hill. However, Bank of America is 3.34 times more volatile than Diamond Hill Long Short. It trades about 0.1 of its potential returns per unit of risk. Diamond Hill Long Short is currently generating about 0.1 per unit of risk. If you would invest 2,824 in Bank of America on September 1, 2024 and sell it today you would earn a total of 1,927 from holding Bank of America or generate 68.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Diamond Hill Long Short
Performance |
| Timeline |
| Bank of America |
| Diamond Hill Long |
Bank of America and Diamond Hill Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Diamond Hill
The main advantage of trading using opposite Bank of America and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Diamond Hill 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 Diamond Hill will offset losses from the drop in Diamond Hill's long position.| Bank of America vs. Citigroup | Bank of America vs. Toronto Dominion Bank | Bank of America vs. Royal Bank of | Bank of America vs. JPMorgan Chase Co |
| Diamond Hill vs. Franklin Adjustable Government | Diamond Hill vs. Government Securities Fund | Diamond Hill vs. Franklin Government Money | Diamond Hill vs. Dunham Porategovernment Bond |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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