Correlation Between Bank of America and A O

Can any of the company-specific risk be diversified away by investing in both Bank of America and A O 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 A O 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 A O Smith, you can compare the effects of market volatilities on Bank of America and A O 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 A O. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and A O.

Diversification Opportunities for Bank of America and A O

0.85

Correlation Coefficient

Bank of America  A O

Very poor diversification

The 3 months correlation between Bank and AOS is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and A O Smith in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on A O Smith 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 A O. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of A O Smith has no effect on the direction of Bank of America i.e., Bank of America and A O go up and down completely randomly.

Pair Corralation between Bank of America and A O

Assuming the 90 days trading horizon Bank of America is expected to generate 518.58 times more return on investment than A O. However, Bank of America is 518.58 times more volatile than A O Smith. It trades about 0.13 of its potential returns per unit of risk. A O Smith is currently generating about 0.14 per unit of risk. If you would invest  77,419  in Bank of America on September 29, 2024 and sell it today you would earn a total of  11,789  from holding Bank of America or generate 15.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Bank of America  vs.  A O Smith

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.

A O Smith

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in A O Smith are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, A O is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank of America and A O

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

The idea behind Bank of America and A O Smith 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.