Correlation Between Bank of America and Nasdaq CTA

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Can any of the company-specific risk be diversified away by investing in both Bank of America and Nasdaq CTA 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 Nasdaq CTA 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 Nasdaq CTA Artificial, you can compare the effects of market volatilities on Bank of America and Nasdaq CTA 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 Nasdaq CTA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Nasdaq CTA.

Diversification Opportunities for Bank of America and Nasdaq CTA

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Bank and Nasdaq is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Nasdaq CTA Artificial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq CTA Artificial 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 Nasdaq CTA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq CTA Artificial has no effect on the direction of Bank of America i.e., Bank of America and Nasdaq CTA go up and down completely randomly.
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Pair Corralation between Bank of America and Nasdaq CTA

Considering the 90-day investment horizon Bank of America is expected to under-perform the Nasdaq CTA. But the stock apears to be less risky and, when comparing its historical volatility, Bank of America is 1.2 times less risky than Nasdaq CTA. The stock trades about -0.17 of its potential returns per unit of risk. The Nasdaq CTA Artificial is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  157,228  in Nasdaq CTA Artificial on September 19, 2024 and sell it today you would earn a total of  9,049  from holding Nasdaq CTA Artificial or generate 5.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.45%
ValuesDaily Returns

Bank of America  vs.  Nasdaq CTA Artificial

 Performance 
       Timeline  

Bank of America and Nasdaq CTA Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bank of America and Nasdaq CTA

The main advantage of trading using opposite Bank of America and Nasdaq CTA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Nasdaq CTA 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 Nasdaq CTA will offset losses from the drop in Nasdaq CTA's long position.
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The idea behind Bank of America and Nasdaq CTA Artificial pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.

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