Correlation Between Bank of America and Sony

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

Diversification Opportunities for Bank of America and Sony

0.59

Correlation Coefficient

Bank of America  Sony

Very weak diversification

The 3 months correlation between Bank and Sony is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Sony Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sony Group 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 Sony. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sony Group has no effect on the direction of Bank of America i.e., Bank of America and Sony go up and down completely randomly.

Pair Corralation between Bank of America and Sony

Assuming the 90 days trading horizon Bank of America is expected to generate 1.15 times less return on investment than Sony. In addition to that, Bank of America is 1.12 times more volatile than Sony Group. It trades about 0.13 of its total potential returns per unit of risk. Sony Group is currently generating about 0.17 per unit of volatility. If you would invest  37,000  in Sony Group on September 29, 2024 and sell it today you would earn a total of  6,600  from holding Sony Group or generate 17.84% return on investment over 90 days.

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

Bank of America  vs.  Sony Group

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.

Sony Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sony Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Sony displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and Sony

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

The idea behind Bank of America and Sony Group 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .