Correlation Between Banco Bilbao and Bank of America

Can any of the company-specific risk be diversified away by investing in both Banco Bilbao and Bank of America 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 Banco Bilbao and Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Banco Bilbao Vizcaya and Bank of America, you can compare the effects of market volatilities on Banco Bilbao and Bank of America 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 Banco Bilbao with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Bilbao and Bank of America.

Diversification Opportunities for Banco Bilbao and Bank of America

-0.56

Correlation Coefficient

Banco Bilbao  Bank of America

Excellent diversification

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

Pair Corralation between Banco Bilbao and Bank of America

Assuming the 90 days trading horizon Banco Bilbao Vizcaya is expected to generate 1.16 times more return on investment than Bank of America. However, Banco Bilbao is 1.16 times more volatile than Bank of America. It trades about 0.07 of its potential returns per unit of risk. Bank of America is currently generating about 0.05 per unit of risk. If you would invest  11,096  in Banco Bilbao Vizcaya on September 26, 2024 and sell it today you would earn a total of  8,404  from holding Banco Bilbao Vizcaya or generate 75.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Banco Bilbao Vizcaya  vs.  Bank of America

Banco Bilbao Vizcaya

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco Bilbao Vizcaya has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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.

Pair Trading with Banco Bilbao and Bank of America

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

The idea behind Banco Bilbao Vizcaya and Bank of America 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.