Correlation Between Bank of America and Numinus Wellness
Can any of the company-specific risk be diversified away by investing in both Bank of America and Numinus Wellness 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 Numinus Wellness 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 Numinus Wellness, you can compare the effects of market volatilities on Bank of America and Numinus Wellness 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 Numinus Wellness. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Numinus Wellness.
Diversification Opportunities for Bank of America and Numinus Wellness
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Bank and Numinus is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Numinus Wellness in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Numinus Wellness 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 Numinus Wellness. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Numinus Wellness has no effect on the direction of Bank of America i.e., Bank of America and Numinus Wellness go up and down completely randomly.
Pair Corralation between Bank of America and Numinus Wellness
Considering the 90-day investment horizon Bank of America is expected to generate 0.15 times more return on investment than Numinus Wellness. However, Bank of America is 6.62 times less risky than Numinus Wellness. It trades about 0.14 of its potential returns per unit of risk. Numinus Wellness is currently generating about 0.01 per unit of risk. If you would invest 2,548 in Bank of America on October 25, 2024 and sell it today you would earn a total of 2,120 from holding Bank of America or generate 83.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.68% |
| Values | Daily Returns |
Bank of America vs. Numinus Wellness
Performance |
| Timeline |
| Bank of America |
| Numinus Wellness |
Bank of America and Numinus Wellness Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Numinus Wellness
The main advantage of trading using opposite Bank of America and Numinus Wellness positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Numinus Wellness 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 Numinus Wellness will offset losses from the drop in Numinus Wellness' long position.| Bank of America vs. JPMorgan Chase Co | Bank of America vs. Bank of America | Bank of America vs. RLJ Lodging Trust | Bank of America vs. PennyMac Finl Svcs |
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Numinus Wellness as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Numinus Wellness' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Numinus Wellness' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Numinus Wellness.
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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