Correlation Between Bank of America and Amazon CDR
Can any of the company-specific risk be diversified away by investing in both Bank of America and Amazon CDR 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 Amazon CDR 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 Amazon CDR, you can compare the effects of market volatilities on Bank of America and Amazon CDR 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 Amazon CDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Amazon CDR.
Diversification Opportunities for Bank of America and Amazon CDR
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bank and Amazon is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Amazon CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon CDR 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 Amazon CDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon CDR has no effect on the direction of Bank of America i.e., Bank of America and Amazon CDR go up and down completely randomly.
Pair Corralation between Bank of America and Amazon CDR
Assuming the 90 days trading horizon Bank of America is expected to generate 0.88 times more return on investment than Amazon CDR. However, Bank of America is 1.14 times less risky than Amazon CDR. It trades about 0.14 of its potential returns per unit of risk. Amazon CDR is currently generating about 0.1 per unit of risk. If you would invest 1,342 in Bank of America on August 29, 2024 and sell it today you would earn a total of 1,146 from holding Bank of America or generate 85.39% 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. Amazon CDR
Performance |
| Timeline |
| Bank of America |
| Amazon CDR |
Bank of America and Amazon CDR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Amazon CDR
The main advantage of trading using opposite Bank of America and Amazon CDR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Amazon CDR 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 Amazon CDR will offset losses from the drop in Amazon CDR's long position.| Bank of America vs. Microsoft Corp CDR | Bank of America vs. Apple Inc CDR | Bank of America vs. Alphabet Inc CDR | Bank of America vs. Amazon CDR |
| Amazon CDR vs. Eros Resources Corp | Amazon CDR vs. Apple Inc CDR | Amazon CDR vs. European Residential Real | Amazon CDR vs. Canadian Utilities Ltd |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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