Correlation Between Bank of America and Lobe Sciences
Can any of the company-specific risk be diversified away by investing in both Bank of America and Lobe Sciences 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 Lobe Sciences 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 Lobe Sciences, you can compare the effects of market volatilities on Bank of America and Lobe Sciences 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 Lobe Sciences. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Lobe Sciences.
Diversification Opportunities for Bank of America and Lobe Sciences
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Bank and Lobe is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Lobe Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lobe Sciences 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 Lobe Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lobe Sciences has no effect on the direction of Bank of America i.e., Bank of America and Lobe Sciences go up and down completely randomly.
Pair Corralation between Bank of America and Lobe Sciences
Considering the 90-day investment horizon Bank of America is expected to generate 281.89 times less return on investment than Lobe Sciences. But when comparing it to its historical volatility, Bank of America is 140.35 times less risky than Lobe Sciences. It trades about 0.11 of its potential returns per unit of risk. Lobe Sciences is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 2.63 in Lobe Sciences on August 26, 2024 and sell it today you would lose (1.38) from holding Lobe Sciences or give up 52.47% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Lobe Sciences
Performance |
| Timeline |
| Bank of America |
| Lobe Sciences |
Bank of America and Lobe Sciences Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Lobe Sciences
The main advantage of trading using opposite Bank of America and Lobe Sciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Lobe Sciences 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 Lobe Sciences will offset losses from the drop in Lobe Sciences' 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 |
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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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