Correlation Between Verizon Communications and Bank of America
Can any of the company-specific risk be diversified away by investing in both Verizon Communications 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 Verizon Communications 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 Verizon Communications CDR and Bank of America, you can compare the effects of market volatilities on Verizon Communications 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 Verizon Communications with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and Bank of America.
Diversification Opportunities for Verizon Communications and Bank of America
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Verizon and Bank is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications CDR 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 Verizon Communications 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 Verizon Communications CDR 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 Verizon Communications i.e., Verizon Communications and Bank of America go up and down completely randomly.
Pair Corralation between Verizon Communications and Bank of America
Assuming the 90 days trading horizon Verizon Communications is expected to generate 1.89 times less return on investment than Bank of America. But when comparing it to its historical volatility, Verizon Communications CDR is 1.85 times less risky than Bank of America. It trades about 0.25 of its potential returns per unit of risk. Bank of America is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 2,219 in Bank of America on August 29, 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 Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications CDR vs. Bank of America
Performance |
| Timeline |
| Verizon Communications |
| Bank of America |
Verizon Communications and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Verizon Communications and Bank of America
The main advantage of trading using opposite Verizon Communications and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications 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.| Verizon Communications vs. Royal Helium | Verizon Communications vs. Excelsior Mining Corp | Verizon Communications vs. Vista Gold | Verizon Communications vs. TeraGo Inc |
| Bank of America vs. Microsoft Corp CDR | Bank of America vs. Apple Inc CDR | Bank of America vs. Alphabet Inc CDR | Bank of America vs. Amazon CDR |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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