Correlation Between Bank of America and Microsoft Corp
Can any of the company-specific risk be diversified away by investing in both Bank of America and Microsoft Corp 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 Microsoft Corp 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 Microsoft Corp CDR, you can compare the effects of market volatilities on Bank of America and Microsoft Corp 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 Microsoft Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Microsoft Corp.
Diversification Opportunities for Bank of America and Microsoft Corp
-0.07 | Correlation Coefficient |
Good diversification
The 3 months correlation between Bank and Microsoft is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Microsoft Corp CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp 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 Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp CDR has no effect on the direction of Bank of America i.e., Bank of America and Microsoft Corp go up and down completely randomly.
Pair Corralation between Bank of America and Microsoft Corp
Assuming the 90 days trading horizon Bank of America is expected to generate 1.23 times more return on investment than Microsoft Corp. However, Bank of America is 1.23 times more volatile than Microsoft Corp CDR. It trades about 0.14 of its potential returns per unit of risk. Microsoft Corp CDR is currently generating about 0.08 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 Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Microsoft Corp CDR
Performance |
| Timeline |
| Bank of America |
| Microsoft Corp CDR |
Bank of America and Microsoft Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Microsoft Corp
The main advantage of trading using opposite Bank of America and Microsoft Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Microsoft Corp 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 Microsoft Corp will offset losses from the drop in Microsoft Corp'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 |
| Microsoft Corp vs. Berkshire Hathaway CDR | Microsoft Corp vs. JPMorgan Chase Co | Microsoft Corp vs. Bank of America | Microsoft Corp vs. Alphabet Inc CDR |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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