Correlation Between Bank of America and Alien Metals

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

Diversification Opportunities for Bank of America and Alien Metals

-0.56

Correlation Coefficient

Bank of America  Alien Metals

Excellent diversification

The 3 months correlation between Bank and Alien is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Alien Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alien Metals 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 Alien Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alien Metals has no effect on the direction of Bank of America i.e., Bank of America and Alien Metals go up and down completely randomly.

Pair Corralation between Bank of America and Alien Metals

Considering the 90-day investment horizon Bank of America is expected to generate 222.41 times less return on investment than Alien Metals. But when comparing it to its historical volatility, Bank of America is 102.44 times less risky than Alien Metals. It trades about 0.09 of its potential returns per unit of risk. Alien Metals is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  0.20  in Alien Metals on September 12, 2024 and sell it today you would lose (0.08) from holding Alien Metals or give up 40.0% of portfolio value over 90 days.

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

Bank of America  vs.  Alien Metals

Bank of America

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.

Alien Metals

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alien Metals are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Alien Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and Alien Metals

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

The idea behind Bank of America and Alien Metals 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.