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
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Bank and National is -0.46. 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 1.59 times more return on investment than National Grid. However, Bank of America is 1.59 times more volatile than National Grid PLC. It trades about 0.31 of its potential returns per unit of risk. National Grid PLC is currently generating about 0.2 per unit of risk. If you would invest 4,182 in Bank of America on September 1, 2024 and sell it today you would earn a total of 569.00 from holding Bank of America or generate 13.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 91.3% |
| 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. Citigroup | Bank of America vs. Nu Holdings | Bank of America vs. HSBC Holdings PLC | Bank of America vs. Bank of Montreal |
| National Grid vs. Enel SpA | National Grid vs. Enel SpA | National Grid vs. Dominion Energy | National Grid vs. Sempra |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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