Correlation Between Bank of America and Laurentian Bank
Can any of the company-specific risk be diversified away by investing in both Bank of America and Laurentian Bank 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 Laurentian Bank 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 Laurentian Bank, you can compare the effects of market volatilities on Bank of America and Laurentian Bank 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 Laurentian Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Laurentian Bank.
Diversification Opportunities for Bank of America and Laurentian Bank
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and Laurentian is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Laurentian Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laurentian Bank 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 Laurentian Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laurentian Bank has no effect on the direction of Bank of America i.e., Bank of America and Laurentian Bank go up and down completely randomly.
Pair Corralation between Bank of America and Laurentian Bank
Assuming the 90 days trading horizon Bank of America is expected to generate 1.88 times more return on investment than Laurentian Bank. However, Bank of America is 1.88 times more volatile than Laurentian Bank. It trades about 0.2 of its potential returns per unit of risk. Laurentian Bank is currently generating about 0.26 per unit of risk. If you would invest 2,204 in Bank of America on August 24, 2024 and sell it today you would earn a total of 215.00 from holding Bank of America or generate 9.75% 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. Laurentian Bank
Performance |
| Timeline |
| Bank of America |
| Laurentian Bank |
Bank of America and Laurentian Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Laurentian Bank
The main advantage of trading using opposite Bank of America and Laurentian Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Laurentian Bank 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 Laurentian Bank will offset losses from the drop in Laurentian Bank's long position.| Bank of America vs. Bank of Nova | Bank of America vs. Canadian Banc Corp | Bank of America vs. Bank of Montreal | Bank of America vs. Bluestone Resources |
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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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