Correlation Between Bank of America and Small Company

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Can any of the company-specific risk be diversified away by investing in both Bank of America and Small Company 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 Small Company 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 Small Pany Fund, you can compare the effects of market volatilities on Bank of America and Small Company 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 Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Small Company.

Diversification Opportunities for Bank of America and Small Company

0.47
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Bank and SMALL is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Small Pany Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Fund 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 Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Fund has no effect on the direction of Bank of America i.e., Bank of America and Small Company go up and down completely randomly.

Pair Corralation between Bank of America and Small Company

Considering the 90-day investment horizon Bank of America is expected to generate 1.29 times more return on investment than Small Company. However, Bank of America is 1.29 times more volatile than Small Pany Fund. It trades about 0.08 of its potential returns per unit of risk. Small Pany Fund is currently generating about 0.03 per unit of risk. If you would invest  2,660  in Bank of America on November 27, 2024 and sell it today you would earn a total of  1,786  from holding Bank of America or generate 67.14% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Bank of America  vs.  Small Pany Fund

 Performance 
       Timeline  
Bank of America 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Bank of America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.
Small Pany Fund 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Small Pany Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental drivers remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Bank of America and Small Company Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bank of America and Small Company

The main advantage of trading using opposite Bank of America and Small Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Small Company 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 Small Company will offset losses from the drop in Small Company's long position.
The idea behind Bank of America and Small Pany Fund 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.
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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