Correlation Between Bank of America and National Grid
Can any of the company-specific risk be diversified away by investing in both Bank of America and National Grid 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 National Grid 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 National Grid plc, you can compare the effects of market volatilities on Bank of America and National Grid 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 National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and National Grid.
Diversification Opportunities for Bank of America and National Grid
-0.61 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Bank and National is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and National Grid plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid plc 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 National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid plc has no effect on the direction of Bank of America i.e., Bank of America and National Grid go up and down completely randomly.
Pair Corralation between Bank of America and National Grid
Considering the 90-day investment horizon Bank of America is expected to generate 1.24 times less return on investment than National Grid. But when comparing it to its historical volatility, Bank of America is 2.72 times less risky than National Grid. It trades about 0.06 of its potential returns per unit of risk. National Grid plc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,141 in National Grid plc on September 3, 2024 and sell it today you would earn a total of 167.00 from holding National Grid plc or generate 14.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 91.72% |
| Values | Daily Returns |
Bank of America vs. National Grid plc
Performance |
| Timeline |
| Bank of America |
| National Grid plc |
Bank of America and National Grid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and National Grid
The main advantage of trading using opposite Bank of America and National Grid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, National Grid 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 National Grid will offset losses from the drop in National Grid'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 |
| National Grid vs. Consolidated Edison | National Grid vs. Entergy | National Grid vs. FirstEnergy | National Grid vs. PPL Corporation |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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