Correlation Between Bank of America and STM Group
Can any of the company-specific risk be diversified away by investing in both Bank of America and STM Group 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 STM Group 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 STM Group Plc, you can compare the effects of market volatilities on Bank of America and STM Group 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 STM Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and STM Group.
Diversification Opportunities for Bank of America and STM Group
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and STM is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and STM Group Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STM Group 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 STM Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STM Group Plc has no effect on the direction of Bank of America i.e., Bank of America and STM Group go up and down completely randomly.
Pair Corralation between Bank of America and STM Group
Considering the 90-day investment horizon Bank of America is expected to generate 0.83 times more return on investment than STM Group. However, Bank of America is 1.21 times less risky than STM Group. It trades about 0.27 of its potential returns per unit of risk. STM Group Plc is currently generating about 0.15 per unit of risk. If you would invest 4,262 in Bank of America on August 29, 2024 and sell it today you would earn a total of 513.00 from holding Bank of America or generate 12.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 22.73% |
| Values | Daily Returns |
Bank of America vs. STM Group Plc
Performance |
| Timeline |
| Bank of America |
| STM Group Plc |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Good
Bank of America and STM Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and STM Group
The main advantage of trading using opposite Bank of America and STM Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, STM Group 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 STM Group will offset losses from the drop in STM Group's long position.| Bank of America vs. Nu Holdings | Bank of America vs. HSBC Holdings PLC | Bank of America vs. Bank of Nova |
| STM Group vs. Silvercorp Metals | STM Group vs. Bisichi Mining PLC | STM Group vs. International Consolidated Airlines | STM Group vs. Greenroc Mining PLC |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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