Correlation Between Bank of America and Royce Micro
Can any of the company-specific risk be diversified away by investing in both Bank of America and Royce Micro 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 Royce Micro 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 Royce Micro Cap, you can compare the effects of market volatilities on Bank of America and Royce Micro 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 Royce Micro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Royce Micro.
Diversification Opportunities for Bank of America and Royce Micro
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bank and Royce is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Royce Micro Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Micro Cap 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 Royce Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Micro Cap has no effect on the direction of Bank of America i.e., Bank of America and Royce Micro go up and down completely randomly.
Pair Corralation between Bank of America and Royce Micro
Considering the 90-day investment horizon Bank of America is expected to generate 1.16 times more return on investment than Royce Micro. However, Bank of America is 1.16 times more volatile than Royce Micro Cap. It trades about 0.06 of its potential returns per unit of risk. Royce Micro Cap is currently generating about 0.05 per unit of risk. If you would invest 3,223 in Bank of America on August 31, 2024 and sell it today you would earn a total of 1,528 from holding Bank of America or generate 47.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Royce Micro Cap
Performance |
| Timeline |
| Bank of America |
| Royce Micro Cap |
Bank of America and Royce Micro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Royce Micro
The main advantage of trading using opposite Bank of America and Royce Micro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Royce Micro 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 Royce Micro will offset losses from the drop in Royce Micro's long position.| Bank of America vs. RLJ Lodging Trust | Bank of America vs. Aquagold International | Bank of America vs. Stepstone Group | Bank of America vs. Morningstar Unconstrained Allocation |
| Royce Micro vs. HUMANA INC | Royce Micro vs. SCOR PK | Royce Micro vs. Aquagold International | Royce Micro vs. Thrivent High Yield |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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