Correlation Between Bank of America and Electronic Systems

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

Diversification Opportunities for Bank of America and Electronic Systems

-0.38

Correlation Coefficient

Bank of America  Electronic Systems

Very good diversification

The 3 months correlation between Bank and Electronic is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Electronic Systems Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Systems 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 Electronic Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronic Systems has no effect on the direction of Bank of America i.e., Bank of America and Electronic Systems go up and down completely randomly.

Pair Corralation between Bank of America and Electronic Systems

Considering the 90-day investment horizon Bank of America is expected to generate 0.31 times more return on investment than Electronic Systems. However, Bank of America is 3.2 times less risky than Electronic Systems. It trades about 0.16 of its potential returns per unit of risk. Electronic Systems Technology is currently generating about -0.19 per unit of risk. If you would invest  4,024  in Bank of America on September 4, 2024 and sell it today you would earn a total of  680.00  from holding Bank of America or generate 16.9% 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.  Electronic Systems Technology

Bank of America

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 12 (%) 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.

Electronic Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electronic Systems Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Bank of America and Electronic Systems

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

The idea behind Bank of America and Electronic Systems Technology 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.