Correlation Between Royal Bank and Bank of America
Can any of the company-specific risk be diversified away by investing in both Royal Bank 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 Royal Bank 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 Royal Bank of and Bank of America, you can compare the effects of market volatilities on Royal Bank 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 Royal Bank with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Bank and Bank of America.
Diversification Opportunities for Royal Bank and Bank of America
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Royal and Bank is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of 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 Royal Bank 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 Royal Bank of 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 Royal Bank i.e., Royal Bank and Bank of America go up and down completely randomly.
Pair Corralation between Royal Bank and Bank of America
Assuming the 90 days trading horizon Royal Bank is expected to generate 23.1 times less return on investment than Bank of America. But when comparing it to its historical volatility, Royal Bank of is 5.5 times less risky than Bank of America. It trades about 0.06 of its potential returns per unit of risk. Bank of America is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 2,219 in Bank of America on August 28, 2024 and sell it today you would earn a total of 265.00 from holding Bank of America or generate 11.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Royal Bank of vs. Bank of America
Performance |
| Timeline |
| Royal Bank |
| Bank of America |
Royal Bank and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Royal Bank and Bank of America
The main advantage of trading using opposite Royal Bank and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Bank 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.| Royal Bank vs. Forstrong Global Income | Royal Bank vs. BMO Aggregate Bond | Royal Bank vs. Terreno Resources Corp | Royal Bank vs. iShares Canadian HYBrid |
| Bank of America vs. DelphX Capital Markets | Bank of America vs. Citadel Income | Bank of America vs. iShares Canadian HYBrid | Bank of America vs. Altagas Cum Red |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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