Correlation Between Bank of America and Small Cap
Can any of the company-specific risk be diversified away by investing in both Bank of America and Small Cap 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 Cap 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 Cap Equity, you can compare the effects of market volatilities on Bank of America and Small Cap 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 Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Small Cap.
Diversification Opportunities for Bank of America and Small Cap
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bank and Small is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Equity 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 Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Equity has no effect on the direction of Bank of America i.e., Bank of America and Small Cap go up and down completely randomly.
Pair Corralation between Bank of America and Small Cap
Considering the 90-day investment horizon Bank of America is expected to generate 1.3 times more return on investment than Small Cap. However, Bank of America is 1.3 times more volatile than Small Cap Equity. It trades about 0.26 of its potential returns per unit of risk. Small Cap Equity is currently generating about 0.22 per unit of risk. If you would invest 4,262 in Bank of America on August 28, 2024 and sell it today you would earn a total of 488.00 from holding Bank of America or generate 11.45% 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. Small Cap Equity
Performance |
| Timeline |
| Bank of America |
| Small Cap Equity |
Bank of America and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Small Cap
The main advantage of trading using opposite Bank of America and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Small Cap 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 Cap will offset losses from the drop in Small Cap's long position.| Bank of America vs. Nu Holdings | Bank of America vs. HSBC Holdings PLC | Bank of America vs. Bank of Nova |
| Small Cap vs. Franklin Government Money | Small Cap vs. Blackrock Funds Iii | Small Cap vs. Transamerica Funds | Small Cap vs. Massmutual Premier Funds |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
Other Complementary Tools
| Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities | |
| Price Transformation Use Price Transformation models to analyze the depth of different equity instruments across global markets | |
| Funds Screener Find actively-traded funds from around the world traded on over 30 global exchanges | |
| Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm | |
| Alpha Finder Use alpha and beta coefficients to find investment opportunities after accounting for the risk |