Correlation Between Bank of America and Hammond Manufacturing
Can any of the company-specific risk be diversified away by investing in both Bank of America and Hammond Manufacturing 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 Hammond Manufacturing 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 Hammond Manufacturing, you can compare the effects of market volatilities on Bank of America and Hammond Manufacturing 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 Hammond Manufacturing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Hammond Manufacturing.
Diversification Opportunities for Bank of America and Hammond Manufacturing
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and Hammond is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Hammond Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hammond Manufacturing 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 Hammond Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hammond Manufacturing has no effect on the direction of Bank of America i.e., Bank of America and Hammond Manufacturing go up and down completely randomly.
Pair Corralation between Bank of America and Hammond Manufacturing
Assuming the 90 days trading horizon Bank of America is expected to generate 1.25 times more return on investment than Hammond Manufacturing. However, Bank of America is 1.25 times more volatile than Hammond Manufacturing. It trades about 0.29 of its potential returns per unit of risk. Hammond Manufacturing is currently generating about 0.02 per unit of risk. If you would invest 2,207 in Bank of America on August 31, 2024 and sell it today you would earn a total of 293.00 from holding Bank of America or generate 13.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Hammond Manufacturing
Performance |
| Timeline |
| Bank of America |
| Hammond Manufacturing |
Bank of America and Hammond Manufacturing Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Hammond Manufacturing
The main advantage of trading using opposite Bank of America and Hammond Manufacturing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Hammond Manufacturing 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 Hammond Manufacturing will offset losses from the drop in Hammond Manufacturing's long position.| Bank of America vs. Highwood Asset Management | Bank of America vs. Precision Drilling | Bank of America vs. Metalero Mining Corp | Bank of America vs. Brookfield Office Properties |
| Hammond Manufacturing vs. Baylin Technologies | Hammond Manufacturing vs. Supremex | Hammond Manufacturing vs. iShares Canadian HYBrid | Hammond Manufacturing vs. Brompton European Dividend |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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