Correlation Between Bank of America and Plumb Equity
Can any of the company-specific risk be diversified away by investing in both Bank of America and Plumb Equity 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 Plumb Equity 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 Plumb Equity, you can compare the effects of market volatilities on Bank of America and Plumb Equity 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 Plumb Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Plumb Equity.
Diversification Opportunities for Bank of America and Plumb Equity
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Bank and Plumb is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Plumb Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumb Equity 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 Plumb Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumb Equity has no effect on the direction of Bank of America i.e., Bank of America and Plumb Equity go up and down completely randomly.
Pair Corralation between Bank of America and Plumb Equity
Considering the 90-day investment horizon Bank of America is expected to generate 1.36 times more return on investment than Plumb Equity. However, Bank of America is 1.36 times more volatile than Plumb Equity. It trades about 0.11 of its potential returns per unit of risk. Plumb Equity is currently generating about 0.07 per unit of risk. If you would invest 3,918 in Bank of America on September 2, 2024 and sell it today you would earn a total of 833.00 from holding Bank of America or generate 21.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Plumb Equity
Performance |
| Timeline |
| Bank of America |
| Plumb Equity |
Bank of America and Plumb Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Plumb Equity
The main advantage of trading using opposite Bank of America and Plumb Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Plumb Equity 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 Plumb Equity will offset losses from the drop in Plumb Equity'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 |
| Plumb Equity vs. Plumb Balanced Fund | Plumb Equity vs. Edgewood Growth Fund | Plumb Equity vs. Growth Fund Growth | Plumb Equity vs. Baron Fifth Avenue |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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