Correlation Between Bank of America and Vulcan Materials
Can any of the company-specific risk be diversified away by investing in both Bank of America and Vulcan Materials 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 Vulcan Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and Vulcan Materials, you can compare the effects of market volatilities on Bank of America and Vulcan Materials 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 Vulcan Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Vulcan Materials.
Diversification Opportunities for Bank of America and Vulcan Materials
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Bank and Vulcan is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Vulcan Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials 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 Verizon Communications are associated (or correlated) with Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of Bank of America i.e., Bank of America and Vulcan Materials go up and down completely randomly.
Pair Corralation between Bank of America and Vulcan Materials
Assuming the 90 days trading horizon Verizon Communications is expected to under-perform the Vulcan Materials. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 1.53 times less risky than Vulcan Materials. The stock trades about -0.03 of its potential returns per unit of risk. The Vulcan Materials is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 22,159 in Vulcan Materials on September 26, 2024 and sell it today you would earn a total of 2,841 from holding Vulcan Materials or generate 12.82% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Verizon Communications vs. Vulcan Materials
Performance |
Timeline |
Verizon Communications |
Vulcan Materials |
Bank of America and Vulcan Materials Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Bank of America and Vulcan Materials
The main advantage of trading using opposite Bank of America and Vulcan Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Vulcan Materials 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 Vulcan Materials will offset losses from the drop in Vulcan Materials' long position.Bank of America vs. Apple Inc | Bank of America vs. Apple Inc | Bank of America vs. Microsoft | Bank of America vs. Microsoft |
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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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