Correlation Between GM and Bank of America
Can any of the company-specific risk be diversified away by investing in both GM and Bank of America 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 GM and Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Bank of America, you can compare the effects of market volatilities on GM and Bank of America 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 GM with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Bank of America.
Diversification Opportunities for GM and Bank of America
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and Bank is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America and GM 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 General Motors are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of GM i.e., GM and Bank of America go up and down completely randomly.
Pair Corralation between GM and Bank of America
Allowing for the 90-day total investment horizon GM is expected to generate 1.55 times less return on investment than Bank of America. But when comparing it to its historical volatility, General Motors is 1.16 times less risky than Bank of America. It trades about 0.12 of its potential returns per unit of risk. Bank of America is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 3,359 in Bank of America on August 28, 2024 and sell it today you would earn a total of 1,381 from holding Bank of America or generate 41.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 49.28% |
| Values | Daily Returns |
General Motors vs. Bank of America
Performance |
| Timeline |
| General Motors |
| Bank of America |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Solid
GM and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Bank of America
The main advantage of trading using opposite GM and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.The idea behind General Motors and Bank of America pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Bank of America vs. Banco de Credito | Bank of America vs. Rimac Seguros y | Bank of America vs. Nexa Resources Peru |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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