Correlation Between Bank of America and Compass Group
Can any of the company-specific risk be diversified away by investing in both Bank of America and Compass Group 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 Compass Group 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 Compass Group PLC, you can compare the effects of market volatilities on Bank of America and Compass Group 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 Compass Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Compass Group.
Diversification Opportunities for Bank of America and Compass Group
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Bank and Compass is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Compass Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Group PLC 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 Compass Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Group PLC has no effect on the direction of Bank of America i.e., Bank of America and Compass Group go up and down completely randomly.
Pair Corralation between Bank of America and Compass Group
Considering the 90-day investment horizon Bank of America is expected to generate 1.02 times more return on investment than Compass Group. However, Bank of America is 1.02 times more volatile than Compass Group PLC. It trades about 0.1 of its potential returns per unit of risk. Compass Group PLC is currently generating about 0.06 per unit of risk. If you would invest 2,820 in Bank of America on August 31, 2024 and sell it today you would earn a total of 1,931 from holding Bank of America or generate 68.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 98.42% |
| Values | Daily Returns |
Bank of America vs. Compass Group PLC
Performance |
| Timeline |
| Bank of America |
| Compass Group PLC |
Bank of America and Compass Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Compass Group
The main advantage of trading using opposite Bank of America and Compass Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Compass Group 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 Compass Group will offset losses from the drop in Compass Group's long position.| Bank of America vs. RLJ Lodging Trust | Bank of America vs. Aquagold International | Bank of America vs. Stepstone Group | Bank of America vs. Morningstar Unconstrained Allocation |
| Compass Group vs. McDonalds | Compass Group vs. Starbucks | Compass Group vs. Restaurant Brands International |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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