Correlation Between Bank of America and True North
Can any of the company-specific risk be diversified away by investing in both Bank of America and True North 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 True North 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 True North Commercial, you can compare the effects of market volatilities on Bank of America and True North 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 True North. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and True North.
Diversification Opportunities for Bank of America and True North
-0.41 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Bank and True is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and True North Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on True North Commercial 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 True North. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of True North Commercial has no effect on the direction of Bank of America i.e., Bank of America and True North go up and down completely randomly.
Pair Corralation between Bank of America and True North
Assuming the 90 days trading horizon Bank of America is expected to generate 1.4 times less return on investment than True North. But when comparing it to its historical volatility, Bank of America is 1.79 times less risky than True North. It trades about 0.1 of its potential returns per unit of risk. True North Commercial is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 919.00 in True North Commercial on September 3, 2024 and sell it today you would earn a total of 233.00 from holding True North Commercial or generate 25.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. True North Commercial
Performance |
| Timeline |
| Bank of America |
| True North Commercial |
Bank of America and True North Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and True North
The main advantage of trading using opposite Bank of America and True North positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, True North 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 True North will offset losses from the drop in True North's long position.| Bank of America vs. Diamond Estates Wines | Bank of America vs. Perseus Mining | Bank of America vs. Ramp Metals | Bank of America vs. HPQ Silicon 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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