Correlation Between HomeToGo and Bank of America
Can any of the company-specific risk be diversified away by investing in both HomeToGo 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 HomeToGo 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 HomeToGo SE and Verizon Communications, you can compare the effects of market volatilities on HomeToGo 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 HomeToGo with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of HomeToGo and Bank of America.
Diversification Opportunities for HomeToGo and Bank of America
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between HomeToGo and Bank is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding HomeToGo SE and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and HomeToGo 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 HomeToGo SE 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 Verizon Communications has no effect on the direction of HomeToGo i.e., HomeToGo and Bank of America go up and down completely randomly.
Pair Corralation between HomeToGo and Bank of America
Assuming the 90 days trading horizon HomeToGo is expected to generate 2.61 times less return on investment than Bank of America. In addition to that, HomeToGo is 2.25 times more volatile than Verizon Communications. It trades about 0.01 of its total potential returns per unit of risk. Verizon Communications is currently generating about 0.05 per unit of volatility. If you would invest 3,049 in Verizon Communications on August 26, 2024 and sell it today you would earn a total of 1,099 from holding Verizon Communications or generate 36.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
HomeToGo SE vs. Verizon Communications
Performance |
| Timeline |
| HomeToGo SE |
| Verizon Communications |
HomeToGo and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HomeToGo and Bank of America
The main advantage of trading using opposite HomeToGo and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HomeToGo 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 HomeToGo SE and Verizon Communications 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. Apple Inc | Bank of America vs. Apple Inc | Bank of America vs. Apple Inc | Bank of America vs. Apple Inc |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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