Correlation Between Bank of America and First Western
Can any of the company-specific risk be diversified away by investing in both Bank of America and First Western 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 Western 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 Western Financial, you can compare the effects of market volatilities on Bank of America and First Western 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 Western. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and First Western.
Diversification Opportunities for Bank of America and First Western
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and First is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and First Western Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Western Financial 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 Western. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Western Financial has no effect on the direction of Bank of America i.e., Bank of America and First Western go up and down completely randomly.
Pair Corralation between Bank of America and First Western
Considering the 90-day investment horizon Bank of America is expected to generate 0.54 times more return on investment than First Western. However, Bank of America is 1.86 times less risky than First Western. It trades about 0.06 of its potential returns per unit of risk. First Western Financial is currently generating about -0.01 per unit of risk. If you would invest 3,138 in Bank of America on August 27, 2024 and sell it today you would earn a total of 1,562 from holding Bank of America or generate 49.78% 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. First Western Financial
Performance |
| Timeline |
| Bank of America |
| First Western Financial |
Bank of America and First Western Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and First Western
The main advantage of trading using opposite Bank of America and First Western positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, First Western 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 Western will offset losses from the drop in First Western'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 |
| First Western vs. Home Federal Bancorp | First Western vs. First Financial Northwest | First Western vs. First Northwest Bancorp | First Western vs. First Capital |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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