Correlation Between Bank of America and Ternium SA
Can any of the company-specific risk be diversified away by investing in both Bank of America and Ternium SA 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 Ternium SA 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 Ternium SA ADR, you can compare the effects of market volatilities on Bank of America and Ternium SA 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 Ternium SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Ternium SA.
Diversification Opportunities for Bank of America and Ternium SA
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Bank and Ternium is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Ternium SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ternium SA ADR 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 Ternium SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ternium SA ADR has no effect on the direction of Bank of America i.e., Bank of America and Ternium SA go up and down completely randomly.
Pair Corralation between Bank of America and Ternium SA
Considering the 90-day investment horizon Bank of America is expected to generate 7.61 times less return on investment than Ternium SA. But when comparing it to its historical volatility, Bank of America is 1.83 times less risky than Ternium SA. It trades about 0.04 of its potential returns per unit of risk. Ternium SA ADR is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 2,877 in Ternium SA ADR on November 21, 2024 and sell it today you would earn a total of 155.00 from holding Ternium SA ADR or generate 5.39% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Bank of America vs. Ternium SA ADR
Performance |
Timeline |
Bank of America |
Ternium SA ADR |
Bank of America and Ternium SA Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Bank of America and Ternium SA
The main advantage of trading using opposite Bank of America and Ternium SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Ternium SA 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 Ternium SA will offset losses from the drop in Ternium SA's long position.Bank of America vs. Citigroup | ||
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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