Correlation Between Bank of America and Tesla
Can any of the company-specific risk be diversified away by investing in both Bank of America and Tesla 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 Tesla 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 Tesla Inc, you can compare the effects of market volatilities on Bank of America and Tesla 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 Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Tesla.
Diversification Opportunities for Bank of America and Tesla
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bank and Tesla is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc 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 Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of Bank of America i.e., Bank of America and Tesla go up and down completely randomly.
Pair Corralation between Bank of America and Tesla
Considering the 90-day investment horizon Bank of America is expected to generate 2.94 times less return on investment than Tesla. But when comparing it to its historical volatility, Bank of America is 2.56 times less risky than Tesla. It trades about 0.31 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest 4,542 in Tesla Inc on September 1, 2024 and sell it today you would earn a total of 1,958 from holding Tesla Inc or generate 43.11% 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. Tesla Inc
Performance |
| Timeline |
| Bank of America |
| Tesla Inc |
Bank of America and Tesla Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Tesla
The main advantage of trading using opposite Bank of America and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Tesla 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 Tesla will offset losses from the drop in Tesla's long position.| Bank of America vs. Citigroup | Bank of America vs. Royal Bank of | Bank of America vs. Nu Holdings | Bank of America vs. HSBC Holdings PLC |
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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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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