Correlation Between Bank of America and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Bank of America and SPDR SP 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 SPDR SP 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 SPDR SP Materials, you can compare the effects of market volatilities on Bank of America and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and SPDR SP.
Diversification Opportunities for Bank of America and SPDR SP
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and SPDR is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and SPDR SP Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Materials 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Materials has no effect on the direction of Bank of America i.e., Bank of America and SPDR SP go up and down completely randomly.
Pair Corralation between Bank of America and SPDR SP
Considering the 90-day investment horizon Bank of America is expected to generate 1.8 times more return on investment than SPDR SP. However, Bank of America is 1.8 times more volatile than SPDR SP Materials. It trades about 0.12 of its potential returns per unit of risk. SPDR SP Materials is currently generating about 0.07 per unit of risk. If you would invest 3,722 in Bank of America on September 3, 2024 and sell it today you would earn a total of 1,029 from holding Bank of America or generate 27.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 96.69% |
| Values | Daily Returns |
Bank of America vs. SPDR SP Materials
Performance |
| Timeline |
| Bank of America |
| SPDR SP Materials |
Bank of America and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and SPDR SP
The main advantage of trading using opposite Bank of America and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.| Bank of America vs. Partner Communications | Bank of America vs. Merck Company | Bank of America vs. Western Midstream Partners | Bank of America vs. Edgewise Therapeutics |
| SPDR SP vs. SPDR Barclays 10 | SPDR SP vs. SPDR ICE BofA | SPDR SP vs. SPDR SP Utilities | SPDR SP vs. SPDR ICE BofA |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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