Correlation Between Bank of America and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Bank of America and Northern Lights 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 Northern Lights 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 Northern Lights, you can compare the effects of market volatilities on Bank of America and Northern Lights 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 Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Northern Lights.
Diversification Opportunities for Bank of America and Northern Lights
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bank and Northern is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights 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 Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Bank of America i.e., Bank of America and Northern Lights go up and down completely randomly.
Pair Corralation between Bank of America and Northern Lights
Considering the 90-day investment horizon Bank of America is expected to generate 100.05 times less return on investment than Northern Lights. But when comparing it to its historical volatility, Bank of America is 63.87 times less risky than Northern Lights. It trades about 0.06 of its potential returns per unit of risk. Northern Lights is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 0.00 in Northern Lights on August 30, 2024 and sell it today you would earn a total of 2,771 from holding Northern Lights or generate 9.223372036854776E16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 20.2% |
| Values | Daily Returns |
Bank of America vs. Northern Lights
Performance |
| Timeline |
| Bank of America |
| Northern Lights |
Bank of America and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Northern Lights
The main advantage of trading using opposite Bank of America and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Northern Lights 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 Northern Lights will offset losses from the drop in Northern Lights' long position.| Bank of America vs. Citigroup | Bank of America vs. Wells Fargo | Bank of America vs. Toronto Dominion Bank | Bank of America vs. JPMorgan Chase Co |
| Northern Lights vs. Davis Select International | Northern Lights vs. Tidal ETF Trust | Northern Lights vs. Principal Value ETF | Northern Lights vs. WisdomTree Emerging Markets |
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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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