Correlation Between Bank of America and First Trust
Can any of the company-specific risk be diversified away by investing in both Bank of America and First Trust 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 First Trust 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 First Trust NASDAQ 100, you can compare the effects of market volatilities on Bank of America and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and First Trust.
Diversification Opportunities for Bank of America and First Trust
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and First is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and First Trust NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust NASDAQ has no effect on the direction of Bank of America i.e., Bank of America and First Trust go up and down completely randomly.
Pair Corralation between Bank of America and First Trust
Considering the 90-day investment horizon Bank of America is expected to under-perform the First Trust. In addition to that, Bank of America is 2.15 times more volatile than First Trust NASDAQ 100. It trades about -0.23 of its total potential returns per unit of risk. First Trust NASDAQ 100 is currently generating about -0.23 per unit of volatility. If you would invest 9,751 in First Trust NASDAQ 100 on January 8, 2025 and sell it today you would lose (1,179) from holding First Trust NASDAQ 100 or give up 12.09% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.62% |
| Values | Daily Returns |
Bank of America vs. First Trust NASDAQ 100
Performance |
| Timeline |
| Bank of America |
| First Trust NASDAQ |
Bank of America and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and First Trust
The main advantage of trading using opposite Bank of America and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Bank of America vs. Citigroup | Bank of America vs. Wells Fargo | Bank of America vs. Toronto Dominion Bank | Bank of America vs. Royal Bank of |
| First Trust vs. Vanguard Total Stock | First Trust vs. SPDR SP 500 | First Trust vs. iShares Core SP | First Trust vs. Vanguard Dividend Appreciation |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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