Correlation Between Bank of America and Ternium SA

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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

BankTerniumDiversified AwayBankTerniumDiversified Away100%
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 Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Bank of America  vs.  Ternium SA ADR

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -15-10-505
JavaScript chart by amCharts 3.21.15BAC TX
       Timeline  
Bank of America 

Risk-Adjusted Performance

Weak

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Bank of America is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb434445464748
Ternium SA ADR 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Ternium SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb293031323334

Bank of America and Ternium SA Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.53-2.64-1.76-0.870.00.881.82.713.624.54 0.050.100.150.200.250.30
JavaScript chart by amCharts 3.21.15BAC TX
       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.
The idea behind Bank of America and Ternium SA ADR 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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