Correlation Between Bank of America and Ambev SA

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

By analyzing existing cross correlation between Bank of America and Ambev SA, you can compare the effects of market volatilities on Bank of America and Ambev SA 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 Ambev SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Ambev SA.

Diversification Opportunities for Bank of America and Ambev SA

-0.37

Correlation Coefficient

Bank of America  Ambev SA

Very good diversification

The 3 months correlation between Bank and Ambev is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Ambev SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ambev SA 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 Bank of America are associated (or correlated) with Ambev SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ambev SA has no effect on the direction of Bank of America i.e., Bank of America and Ambev SA go up and down completely randomly.

Pair Corralation between Bank of America and Ambev SA

Assuming the 90 days trading horizon Bank of America is expected to generate 0.5 times more return on investment than Ambev SA. However, Bank of America is 2.0 times less risky than Ambev SA. It trades about 0.1 of its potential returns per unit of risk. Ambev SA is currently generating about 0.03 per unit of risk. If you would invest  73,385  in Bank of America on September 30, 2024 and sell it today you would earn a total of  15,823  from holding Bank of America or generate 21.56% return on investment over 90 days.

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

Bank of America  vs.  Ambev SA

Bank of America

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Bank of America showed solid returns over the last few months and may actually be approaching a breakup point.

Ambev SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ambev SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Bank of America and Ambev SA

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

The idea behind Bank of America and Ambev SA 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.