Correlation Between PayPal Holdings and Bank of America
Can any of the company-specific risk be diversified away by investing in both PayPal Holdings 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 PayPal Holdings 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 PayPal Holdings and Bank of America, you can compare the effects of market volatilities on PayPal Holdings 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 PayPal Holdings with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of PayPal Holdings and Bank of America.
Diversification Opportunities for PayPal Holdings and Bank of America
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between PayPal and Bank is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding PayPal Holdings 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 PayPal Holdings 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 PayPal Holdings 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 PayPal Holdings i.e., PayPal Holdings and Bank of America go up and down completely randomly.
Pair Corralation between PayPal Holdings and Bank of America
Given the investment horizon of 90 days PayPal Holdings is expected to generate 1.2 times less return on investment than Bank of America. But when comparing it to its historical volatility, PayPal Holdings is 1.22 times less risky than Bank of America. It trades about 0.29 of its potential returns per unit of risk. Bank of America is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 4,231 in Bank of America on August 31, 2024 and sell it today you would earn a total of 546.00 from holding Bank of America or generate 12.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
PayPal Holdings vs. Bank of America
Performance |
| Timeline |
| PayPal Holdings |
| Bank of America |
PayPal Holdings and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PayPal Holdings and Bank of America
The main advantage of trading using opposite PayPal Holdings and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PayPal Holdings 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.| PayPal Holdings vs. SoFi Technologies | PayPal Holdings vs. Visa Class A | PayPal Holdings vs. Mastercard | PayPal Holdings vs. Capital One Financial |
| Bank of America vs. RLJ Lodging Trust | Bank of America vs. Aquagold International | Bank of America vs. Stepstone Group | Bank of America vs. Morningstar Unconstrained Allocation |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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