Correlation Between Bank of America and ECN Capital
Can any of the company-specific risk be diversified away by investing in both Bank of America and ECN Capital 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 ECN Capital 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 ECN Capital Corp, you can compare the effects of market volatilities on Bank of America and ECN Capital 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 ECN Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and ECN Capital.
Diversification Opportunities for Bank of America and ECN Capital
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bank and ECN is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and ECN Capital Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECN Capital Corp 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 ECN Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECN Capital Corp has no effect on the direction of Bank of America i.e., Bank of America and ECN Capital go up and down completely randomly.
Pair Corralation between Bank of America and ECN Capital
Considering the 90-day investment horizon Bank of America is expected to generate 0.46 times more return on investment than ECN Capital. However, Bank of America is 2.19 times less risky than ECN Capital. It trades about 0.06 of its potential returns per unit of risk. ECN Capital Corp is currently generating about -0.08 per unit of risk. If you would invest 4,562 in Bank of America on September 14, 2024 and sell it today you would earn a total of 46.00 from holding Bank of America or generate 1.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. ECN Capital Corp
Performance |
| Timeline |
| Bank of America |
| ECN Capital Corp |
Bank of America and ECN Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and ECN Capital
The main advantage of trading using opposite Bank of America and ECN Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, ECN Capital 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 ECN Capital will offset losses from the drop in ECN Capital's long position.The idea behind Bank of America and ECN Capital Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| ECN Capital vs. PennyMac Finl Svcs | ECN Capital vs. Velocity Financial Llc | ECN Capital vs. Encore Capital Group | ECN Capital vs. Greystone Housing Impact |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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