Correlation Between Bank of America and United Utilities
Can any of the company-specific risk be diversified away by investing in both Bank of America and United Utilities 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 United Utilities 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 United Utilities Group, you can compare the effects of market volatilities on Bank of America and United Utilities 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 United Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and United Utilities.
Diversification Opportunities for Bank of America and United Utilities
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Bank and United is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities 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 United Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Utilities has no effect on the direction of Bank of America i.e., Bank of America and United Utilities go up and down completely randomly.
Pair Corralation between Bank of America and United Utilities
Considering the 90-day investment horizon Bank of America is expected to generate 0.67 times more return on investment than United Utilities. However, Bank of America is 1.5 times less risky than United Utilities. It trades about 0.25 of its potential returns per unit of risk. United Utilities Group is currently generating about -0.12 per unit of risk. If you would invest 4,395 in Bank of America on November 1, 2024 and sell it today you would earn a total of 272.50 from holding Bank of America or generate 6.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Bank of America vs. United Utilities Group
Performance |
| Timeline |
| Bank of America |
| United Utilities |
Bank of America and United Utilities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and United Utilities
The main advantage of trading using opposite Bank of America and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, United Utilities 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 United Utilities will offset losses from the drop in United Utilities' long position.| Bank of America vs. Royal Bank of | Bank of America vs. Nu Holdings | Bank of America vs. HSBC Holdings PLC | Bank of America vs. Canadian Imperial Bank |
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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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