Correlation Between Bank of America and WESTERN DIGITAL
Can any of the company-specific risk be diversified away by investing in both Bank of America and WESTERN DIGITAL 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 DIGITAL 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 DIGITAL , you can compare the effects of market volatilities on Bank of America and WESTERN DIGITAL 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 DIGITAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and WESTERN DIGITAL.
Diversification Opportunities for Bank of America and WESTERN DIGITAL
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Bank and WESTERN is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and WESTERN DIGITAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESTERN DIGITAL 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 DIGITAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESTERN DIGITAL has no effect on the direction of Bank of America i.e., Bank of America and WESTERN DIGITAL go up and down completely randomly.
Pair Corralation between Bank of America and WESTERN DIGITAL
Considering the 90-day investment horizon Bank of America is expected to generate 0.43 times more return on investment than WESTERN DIGITAL. However, Bank of America is 2.3 times less risky than WESTERN DIGITAL. It trades about 0.32 of its potential returns per unit of risk. WESTERN DIGITAL is currently generating about 0.1 per unit of risk. If you would invest 4,391 in Bank of America on October 30, 2024 and sell it today you would earn a total of 332.00 from holding Bank of America or generate 7.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. WESTERN DIGITAL
Performance |
| Timeline |
| Bank of America |
| WESTERN DIGITAL |
Bank of America and WESTERN DIGITAL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and WESTERN DIGITAL
The main advantage of trading using opposite Bank of America and WESTERN DIGITAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, WESTERN DIGITAL 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 DIGITAL will offset losses from the drop in WESTERN DIGITAL's long position.| Bank of America vs. Toronto Dominion Bank | 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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