Correlation Between National Australia and Bank of America
Can any of the company-specific risk be diversified away by investing in both National Australia 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 National Australia 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 National Australia Bank and Bank of America, you can compare the effects of market volatilities on National Australia 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 National Australia with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Australia and Bank of America.
Diversification Opportunities for National Australia and Bank of America
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between National and Bank is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding National Australia Bank 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 National Australia 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 National Australia Bank 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 National Australia i.e., National Australia and Bank of America go up and down completely randomly.
Pair Corralation between National Australia and Bank of America
Assuming the 90 days horizon National Australia Bank is expected to generate 6.41 times more return on investment than Bank of America. However, National Australia is 6.41 times more volatile than Bank of America. It trades about 0.05 of its potential returns per unit of risk. Bank of America is currently generating about 0.14 per unit of risk. If you would invest 1,833 in National Australia Bank on September 12, 2024 and sell it today you would earn a total of 374.00 from holding National Australia Bank or generate 20.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 54.26% |
| Values | Daily Returns |
National Australia Bank vs. Bank of America
Performance |
| Timeline |
| National Australia Bank |
| Bank of America |
National Australia and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Australia and Bank of America
The main advantage of trading using opposite National Australia and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Australia 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.| National Australia vs. Banco Bilbao Vizcaya | National Australia vs. ABN AMRO Bank | National Australia vs. ING Groep NV | National Australia vs. Banco de Sabadell |
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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