Correlation Between Bank of America and SDX Energy

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

Diversification Opportunities for Bank of America and SDX Energy

BankSDXDiversified AwayBankSDXDiversified Away100%
0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between Bank and SDX is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and SDX Energy plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SDX Energy plc 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 SDX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SDX Energy plc has no effect on the direction of Bank of America i.e., Bank of America and SDX Energy go up and down completely randomly.

Pair Corralation between Bank of America and SDX Energy

Considering the 90-day investment horizon Bank of America is expected to generate 36.62 times less return on investment than SDX Energy. But when comparing it to its historical volatility, Bank of America is 33.71 times less risky than SDX Energy. It trades about 0.09 of its potential returns per unit of risk. SDX Energy plc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  5.12  in SDX Energy plc on November 26, 2024 and sell it today you would lose (3.70) from holding SDX Energy plc or give up 72.27% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy98.89%
ValuesDaily Returns

Bank of America  vs.  SDX Energy plc

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -80-60-40-200
JavaScript chart by amCharts 3.21.15BAC SDXEF
       Timeline  
Bank of America 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Bank of America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Bank of America is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb434445464748
SDX Energy plc 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in SDX Energy plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, SDX Energy reported solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb0.00249999999999999840.0050.010.0150.02

Bank of America and SDX Energy Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.82-1.36-0.9-0.44-0.01520.40.861.321.782.24 0.050.100.150.200.250.30
JavaScript chart by amCharts 3.21.15BAC SDXEF
       Returns  

Pair Trading with Bank of America and SDX Energy

The main advantage of trading using opposite Bank of America and SDX Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, SDX Energy 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 SDX Energy will offset losses from the drop in SDX Energy's long position.
The idea behind Bank of America and SDX Energy plc 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.
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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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.

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