Correlation Between Bank of America and Industrials Ultrasector
Can any of the company-specific risk be diversified away by investing in both Bank of America and Industrials Ultrasector 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 Industrials Ultrasector 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 Industrials Ultrasector Profund, you can compare the effects of market volatilities on Bank of America and Industrials Ultrasector 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 Industrials Ultrasector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Industrials Ultrasector.
Diversification Opportunities for Bank of America and Industrials Ultrasector
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and Industrials is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Industrials Ultrasector Profun in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrials Ultrasector 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 Industrials Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrials Ultrasector has no effect on the direction of Bank of America i.e., Bank of America and Industrials Ultrasector go up and down completely randomly.
Pair Corralation between Bank of America and Industrials Ultrasector
Considering the 90-day investment horizon Bank of America is expected to generate 1.11 times less return on investment than Industrials Ultrasector. In addition to that, Bank of America is 1.14 times more volatile than Industrials Ultrasector Profund. It trades about 0.06 of its total potential returns per unit of risk. Industrials Ultrasector Profund is currently generating about 0.08 per unit of volatility. If you would invest 4,612 in Industrials Ultrasector Profund on August 27, 2024 and sell it today you would earn a total of 2,758 from holding Industrials Ultrasector Profund or generate 59.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Industrials Ultrasector Profun
Performance |
| Timeline |
| Bank of America |
| Industrials Ultrasector |
Bank of America and Industrials Ultrasector Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Industrials Ultrasector
The main advantage of trading using opposite Bank of America and Industrials Ultrasector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Industrials Ultrasector 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 Industrials Ultrasector will offset losses from the drop in Industrials Ultrasector's long position.| Bank of America vs. Toronto Dominion Bank | Bank of America vs. Nu Holdings | Bank of America vs. HSBC Holdings PLC | Bank of America vs. Bank of Montreal |
| Industrials Ultrasector vs. Short Real Estate | Industrials Ultrasector vs. Short Real Estate | Industrials Ultrasector vs. Ultrashort Mid Cap Profund | Industrials Ultrasector vs. Ultrashort Mid Cap Profund |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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