Correlation Between Bank of America and Federal Home
Can any of the company-specific risk be diversified away by investing in both Bank of America and Federal Home 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 Federal Home 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 Federal Home Loan, you can compare the effects of market volatilities on Bank of America and Federal Home 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 Federal Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Federal Home.
Diversification Opportunities for Bank of America and Federal Home
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Bank and Federal is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Federal Home Loan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home Loan 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 Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home Loan has no effect on the direction of Bank of America i.e., Bank of America and Federal Home go up and down completely randomly.
Pair Corralation between Bank of America and Federal Home
Considering the 90-day investment horizon Bank of America is expected to generate 8.09 times less return on investment than Federal Home. But when comparing it to its historical volatility, Bank of America is 5.75 times less risky than Federal Home. It trades about 0.29 of its potential returns per unit of risk. Federal Home Loan is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest 130.00 in Federal Home Loan on August 31, 2024 and sell it today you would earn a total of 183.00 from holding Federal Home Loan or generate 140.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Federal Home Loan
Performance |
| Timeline |
| Bank of America |
| Federal Home Loan |
Bank of America and Federal Home Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Federal Home
The main advantage of trading using opposite Bank of America and Federal Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Federal Home 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 Federal Home will offset losses from the drop in Federal Home's long position.| Bank of America vs. RLJ Lodging Trust | Bank of America vs. Aquagold International | Bank of America vs. Stepstone Group | Bank of America vs. Morningstar Unconstrained Allocation |
| Federal Home vs. CNFinance Holdings | Federal Home vs. Security National Financial | Federal Home vs. Encore Capital Group | Federal Home vs. UWM Holdings Corp |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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