Correlation Between Bank of America and EBay
Can any of the company-specific risk be diversified away by investing in both Bank of America and EBay 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 EBay 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 eBay Inc, you can compare the effects of market volatilities on Bank of America and EBay 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 EBay. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and EBay.
Diversification Opportunities for Bank of America and EBay
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Bank and EBay is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and eBay Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eBay Inc 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 EBay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eBay Inc has no effect on the direction of Bank of America i.e., Bank of America and EBay go up and down completely randomly.
Pair Corralation between Bank of America and EBay
Considering the 90-day investment horizon Bank of America is expected to generate 1.29 times less return on investment than EBay. But when comparing it to its historical volatility, Bank of America is 1.21 times less risky than EBay. It trades about 0.06 of its potential returns per unit of risk. eBay Inc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 10,860 in eBay Inc on August 30, 2024 and sell it today you would earn a total of 8,085 from holding eBay Inc or generate 74.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.6% |
| Values | Daily Returns |
Bank of America vs. eBay Inc
Performance |
| Timeline |
| Bank of America |
| eBay Inc |
Bank of America and EBay Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and EBay
The main advantage of trading using opposite Bank of America and EBay positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, EBay 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 EBay will offset losses from the drop in EBay's 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 |
| EBay vs. Sumitomo Mitsui Financial | EBay vs. Capital One Financial | EBay vs. Marvell Technology | EBay vs. Bank of America |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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