Correlation Between US Bancorp and Bank of America
Can any of the company-specific risk be diversified away by investing in both US Bancorp 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 US Bancorp 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 US Bancorp and Bank of America, you can compare the effects of market volatilities on US Bancorp 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 US Bancorp with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Bancorp and Bank of America.
Diversification Opportunities for US Bancorp and Bank of America
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between USB-PQ and Bank is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding US Bancorp 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 US Bancorp 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 US Bancorp 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 US Bancorp i.e., US Bancorp and Bank of America go up and down completely randomly.
Pair Corralation between US Bancorp and Bank of America
Assuming the 90 days trading horizon US Bancorp is expected to generate 1.26 times more return on investment than Bank of America. However, US Bancorp is 1.26 times more volatile than Bank of America. It trades about -0.06 of its potential returns per unit of risk. Bank of America is currently generating about -0.08 per unit of risk. If you would invest 1,771 in US Bancorp on August 27, 2024 and sell it today you would lose (33.00) from holding US Bancorp or give up 1.86% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
US Bancorp vs. Bank of America
Performance |
| Timeline |
| US Bancorp |
| Bank of America |
US Bancorp and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with US Bancorp and Bank of America
The main advantage of trading using opposite US Bancorp and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Bancorp 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 US Bancorp and Bank of America 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.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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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