Correlation Between Bank of America and Western Alliance
Can any of the company-specific risk be diversified away by investing in both Bank of America and Western Alliance 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 Western Alliance 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 Western Alliance Bancorporation, you can compare the effects of market volatilities on Bank of America and Western Alliance 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 Western Alliance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Western Alliance.
Diversification Opportunities for Bank of America and Western Alliance
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bank and Western is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Western Alliance Bancorp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Alliance Ban 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 Western Alliance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Alliance Ban has no effect on the direction of Bank of America i.e., Bank of America and Western Alliance go up and down completely randomly.
Pair Corralation between Bank of America and Western Alliance
Considering the 90-day investment horizon Bank of America is expected to generate 2.36 times less return on investment than Western Alliance. But when comparing it to its historical volatility, Bank of America is 3.26 times less risky than Western Alliance. It trades about 0.06 of its potential returns per unit of risk. Western Alliance Bancorporation is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 5,759 in Western Alliance Bancorporation on August 30, 2024 and sell it today you would earn a total of 3,591 from holding Western Alliance Bancorporation or generate 62.35% 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. Western Alliance Bancorp.
Performance |
| Timeline |
| Bank of America |
| Western Alliance Ban |
Bank of America and Western Alliance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Western Alliance
The main advantage of trading using opposite Bank of America and Western Alliance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Western Alliance 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 Western Alliance will offset losses from the drop in Western Alliance's long position.| Bank of America vs. Citigroup | Bank of America vs. Wells Fargo | Bank of America vs. Royal Bank of | Bank of America vs. Nu Holdings |
| Western Alliance vs. Zions Bancorporation | Western Alliance vs. KeyCorp | Western Alliance vs. First Horizon National | Western Alliance vs. Comerica |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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