Correlation Between Bank of America and Insurance Australia
Can any of the company-specific risk be diversified away by investing in both Bank of America and Insurance Australia 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 Insurance Australia 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 Insurance Australia Group, you can compare the effects of market volatilities on Bank of America and Insurance Australia 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 Insurance Australia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Insurance Australia.
Diversification Opportunities for Bank of America and Insurance Australia
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and Insurance is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia 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 Insurance Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insurance Australia has no effect on the direction of Bank of America i.e., Bank of America and Insurance Australia go up and down completely randomly.
Pair Corralation between Bank of America and Insurance Australia
Assuming the 90 days trading horizon Bank of America is expected to generate 0.92 times more return on investment than Insurance Australia. However, Bank of America is 1.09 times less risky than Insurance Australia. It trades about 0.14 of its potential returns per unit of risk. Insurance Australia Group is currently generating about 0.11 per unit of risk. If you would invest 2,488 in Bank of America on September 4, 2024 and sell it today you would earn a total of 2,012 from holding Bank of America or generate 80.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.66% |
| Values | Daily Returns |
Bank of America vs. Insurance Australia Group
Performance |
| Timeline |
| Bank of America |
| Insurance Australia |
Bank of America and Insurance Australia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Insurance Australia
The main advantage of trading using opposite Bank of America and Insurance Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Insurance Australia 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 Insurance Australia will offset losses from the drop in Insurance Australia's long position.| Bank of America vs. National Beverage Corp | Bank of America vs. INSURANCE AUST GRP | Bank of America vs. ALBIS LEASING AG | Bank of America vs. China Resources Beer |
| Insurance Australia vs. The Progressive | Insurance Australia vs. The Allstate | Insurance Australia vs. PICC Property and | Insurance Australia vs. Fairfax Financial Holdings |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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