Correlation Between Bank of America and Free Market
Can any of the company-specific risk be diversified away by investing in both Bank of America and Free Market 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 Free Market 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 Free Market Fixed, you can compare the effects of market volatilities on Bank of America and Free Market 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 Free Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Free Market.
Diversification Opportunities for Bank of America and Free Market
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Bank and Free is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Free Market Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Free Market Fixed 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 Free Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Free Market Fixed has no effect on the direction of Bank of America i.e., Bank of America and Free Market go up and down completely randomly.
Pair Corralation between Bank of America and Free Market
Considering the 90-day investment horizon Bank of America is expected to generate 10.29 times more return on investment than Free Market. However, Bank of America is 10.29 times more volatile than Free Market Fixed. It trades about 0.06 of its potential returns per unit of risk. Free Market Fixed is currently generating about 0.12 per unit of risk. If you would invest 3,223 in Bank of America on August 31, 2024 and sell it today you would earn a total of 1,528 from holding Bank of America or generate 47.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.79% |
| Values | Daily Returns |
Bank of America vs. Free Market Fixed
Performance |
| Timeline |
| Bank of America |
| Free Market Fixed |
Bank of America and Free Market Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Free Market
The main advantage of trading using opposite Bank of America and Free Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Free Market 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 Free Market will offset losses from the drop in Free Market'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 |
| Free Market vs. Virtus Convertible | Free Market vs. Fidelity Sai Convertible | Free Market vs. Absolute Convertible Arbitrage | Free Market vs. Advent Claymore Convertible |
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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