Correlation Between Bank of America and Transition Metals
Can any of the company-specific risk be diversified away by investing in both Bank of America and Transition Metals 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 Transition Metals 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 Transition Metals Corp, you can compare the effects of market volatilities on Bank of America and Transition Metals 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 Transition Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Transition Metals.
Diversification Opportunities for Bank of America and Transition Metals
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Bank and Transition is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Transition Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transition Metals Corp 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 Transition Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transition Metals Corp has no effect on the direction of Bank of America i.e., Bank of America and Transition Metals go up and down completely randomly.
Pair Corralation between Bank of America and Transition Metals
Assuming the 90 days trading horizon Bank of America is expected to generate 1.44 times less return on investment than Transition Metals. But when comparing it to its historical volatility, Bank of America is 4.28 times less risky than Transition Metals. It trades about 0.11 of its potential returns per unit of risk. Transition Metals Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 7.00 in Transition Metals Corp on August 27, 2024 and sell it today you would earn a total of 0.00 from holding Transition Metals Corp or generate 0.0% 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. Transition Metals Corp
Performance |
| Timeline |
| Bank of America |
| Transition Metals Corp |
Bank of America and Transition Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Transition Metals
The main advantage of trading using opposite Bank of America and Transition Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Transition Metals 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 Transition Metals will offset losses from the drop in Transition Metals' long position.| Bank of America vs. DelphX Capital Markets | Bank of America vs. Citadel Income | Bank of America vs. iShares Canadian HYBrid | Bank of America vs. Altagas Cum Red |
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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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