Correlation Between Bank of America and First Trust
Can any of the company-specific risk be diversified away by investing in both Bank of America and First Trust 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 First Trust 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 First Trust IPOX, you can compare the effects of market volatilities on Bank of America and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and First Trust.
Diversification Opportunities for Bank of America and First Trust
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Bank and First is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and First Trust IPOX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust IPOX 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust IPOX has no effect on the direction of Bank of America i.e., Bank of America and First Trust go up and down completely randomly.
Pair Corralation between Bank of America and First Trust
Considering the 90-day investment horizon Bank of America is expected to generate 2.24 times more return on investment than First Trust. However, Bank of America is 2.24 times more volatile than First Trust IPOX. It trades about 0.35 of its potential returns per unit of risk. First Trust IPOX is currently generating about 0.18 per unit of risk. If you would invest 4,133 in Bank of America on September 3, 2024 and sell it today you would earn a total of 618.00 from holding Bank of America or generate 14.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. First Trust IPOX
Performance |
| Timeline |
| Bank of America |
| First Trust IPOX |
Bank of America and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and First Trust
The main advantage of trading using opposite Bank of America and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Bank of America vs. Partner Communications | Bank of America vs. Merck Company | Bank of America vs. Western Midstream Partners | Bank of America vs. Edgewise Therapeutics |
| First Trust vs. First Trust International | First Trust vs. First Trust Developed | First Trust vs. First Trust Dorsey | First Trust vs. First Trust Small |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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