Correlation Between Bank of America and Richelieu Hardware
Can any of the company-specific risk be diversified away by investing in both Bank of America and Richelieu Hardware 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 Richelieu Hardware 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 Richelieu Hardware, you can compare the effects of market volatilities on Bank of America and Richelieu Hardware 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 Richelieu Hardware. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Richelieu Hardware.
Diversification Opportunities for Bank of America and Richelieu Hardware
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and Richelieu is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Richelieu Hardware in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richelieu Hardware 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 Richelieu Hardware. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richelieu Hardware has no effect on the direction of Bank of America i.e., Bank of America and Richelieu Hardware go up and down completely randomly.
Pair Corralation between Bank of America and Richelieu Hardware
Assuming the 90 days trading horizon Bank of America is expected to generate 1.23 times less return on investment than Richelieu Hardware. But when comparing it to its historical volatility, Bank of America is 1.7 times less risky than Richelieu Hardware. It trades about 0.18 of its potential returns per unit of risk. Richelieu Hardware is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 3,903 in Richelieu Hardware on November 3, 2024 and sell it today you would earn a total of 205.00 from holding Richelieu Hardware or generate 5.25% 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. Richelieu Hardware
Performance |
| Timeline |
| Bank of America |
| Richelieu Hardware |
Bank of America and Richelieu Hardware Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Richelieu Hardware
The main advantage of trading using opposite Bank of America and Richelieu Hardware positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Richelieu Hardware 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 Richelieu Hardware will offset losses from the drop in Richelieu Hardware's long position.| Bank of America vs. Champion Iron | Bank of America vs. BluMetric Environmental | Bank of America vs. Hemisphere Energy | Bank of America vs. Bird Construction |
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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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