Correlation Between Bank of America and Innovator Laddered

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

Diversification Opportunities for Bank of America and Innovator Laddered

0.75

Correlation Coefficient

Bank of America  Innovator Laddered

Poor diversification

The 3 months correlation between Bank and Innovator is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Innovator Laddered Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Laddered 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 Innovator Laddered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Laddered has no effect on the direction of Bank of America i.e., Bank of America and Innovator Laddered go up and down completely randomly.

Pair Corralation between Bank of America and Innovator Laddered

Considering the 90-day investment horizon Bank of America is expected to generate 6.16 times more return on investment than Innovator Laddered. However, Bank of America is 6.16 times more volatile than Innovator Laddered Allocation. It trades about 0.17 of its potential returns per unit of risk. Innovator Laddered Allocation is currently generating about 0.19 per unit of risk. If you would invest  4,049  in Bank of America on August 30, 2024 and sell it today you would earn a total of  728.00  from holding Bank of America or generate 17.98% return on investment over 90 days.

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

Bank of America  vs.  Innovator Laddered Allocation

Bank of America

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.

Innovator Laddered

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator Laddered Allocation are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Innovator Laddered is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bank of America and Innovator Laddered

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

The idea behind Bank of America and Innovator Laddered Allocation 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 .