Correlation Between Bank of America and UNIVMUSIC GRPADR/050

Can any of the company-specific risk be diversified away by investing in both Bank of America and UNIVMUSIC GRPADR/050 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 UNIVMUSIC GRPADR/050 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Verizon Communications and UNIVMUSIC GRPADR050, you can compare the effects of market volatilities on Bank of America and UNIVMUSIC GRPADR/050 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 UNIVMUSIC GRPADR/050. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and UNIVMUSIC GRPADR/050.

Diversification Opportunities for Bank of America and UNIVMUSIC GRPADR/050

-0.24

Correlation Coefficient

Bank of America  UNIVMUSIC GRPADR/050

Very good diversification

The 3 months correlation between Bank and UNIVMUSIC is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and UNIVMUSIC GRPADR050 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNIVMUSIC GRPADR/050 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 UNIVMUSIC GRPADR/050. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNIVMUSIC GRPADR/050 has no effect on the direction of Bank of America i.e., Bank of America and UNIVMUSIC GRPADR/050 go up and down completely randomly.

Pair Corralation between Bank of America and UNIVMUSIC GRPADR/050

Assuming the 90 days trading horizon Verizon Communications is expected to generate 0.96 times more return on investment than UNIVMUSIC GRPADR/050. However, Verizon Communications is 1.04 times less risky than UNIVMUSIC GRPADR/050. It trades about 0.13 of its potential returns per unit of risk. UNIVMUSIC GRPADR050 is currently generating about -0.04 per unit of risk. If you would invest  3,795  in Verizon Communications on September 3, 2024 and sell it today you would earn a total of  418.00  from holding Verizon Communications or generate 11.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Verizon Communications  vs.  UNIVMUSIC GRPADR050

Verizon Communications

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in January 2025.

UNIVMUSIC GRPADR/050

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UNIVMUSIC GRPADR050 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, UNIVMUSIC GRPADR/050 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bank of America and UNIVMUSIC GRPADR/050

The main advantage of trading using opposite Bank of America and UNIVMUSIC GRPADR/050 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, UNIVMUSIC GRPADR/050 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 UNIVMUSIC GRPADR/050 will offset losses from the drop in UNIVMUSIC GRPADR/050's long position.

The idea behind Verizon Communications and UNIVMUSIC GRPADR050 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.

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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.