Correlation Between Bank of America and HCM Defender

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Can any of the company-specific risk be diversified away by investing in both Bank of America and HCM Defender 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 HCM Defender 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 HCM Defender 100, you can compare the effects of market volatilities on Bank of America and HCM Defender 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 HCM Defender. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and HCM Defender.

Diversification Opportunities for Bank of America and HCM Defender

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Bank and HCM is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and HCM Defender 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCM Defender 100 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 HCM Defender. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCM Defender 100 has no effect on the direction of Bank of America i.e., Bank of America and HCM Defender go up and down completely randomly.

Pair Corralation between Bank of America and HCM Defender

Considering the 90-day investment horizon Bank of America is expected to generate 1.27 times more return on investment than HCM Defender. However, Bank of America is 1.27 times more volatile than HCM Defender 100. It trades about 0.27 of its potential returns per unit of risk. HCM Defender 100 is currently generating about 0.07 per unit of risk. If you would invest  4,189  in Bank of America on August 26, 2024 and sell it today you would earn a total of  511.00  from holding Bank of America or generate 12.2% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Bank of America  vs.  HCM Defender 100

 Performance 
       Timeline  
Bank of America 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.
HCM Defender 100 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in HCM Defender 100 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, HCM Defender may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Bank of America and HCM Defender Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bank of America and HCM Defender

The main advantage of trading using opposite Bank of America and HCM Defender positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, HCM Defender 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 HCM Defender will offset losses from the drop in HCM Defender's long position.
The idea behind Bank of America and HCM Defender 100 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.
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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