Correlation Between Bank of America and Banco Bilbao

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

Diversification Opportunities for Bank of America and Banco Bilbao

0.11

Correlation Coefficient

Bank of America  Banco Bilbao

Average diversification

The 3 months correlation between Bank and Banco is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Banco Bilbao Vizcaya in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Bilbao Vizcaya 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 Banco Bilbao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Bilbao Vizcaya has no effect on the direction of Bank of America i.e., Bank of America and Banco Bilbao go up and down completely randomly.

Pair Corralation between Bank of America and Banco Bilbao

Assuming the 90 days trading horizon Bank of America is expected to generate 0.28 times more return on investment than Banco Bilbao. However, Bank of America is 3.6 times less risky than Banco Bilbao. It trades about 0.16 of its potential returns per unit of risk. Banco Bilbao Vizcaya is currently generating about -0.05 per unit of risk. If you would invest  2,156  in Bank of America on September 3, 2024 and sell it today you would earn a total of  150.00  from holding Bank of America or generate 6.96% return on investment over 90 days.

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

Bank of America  vs.  Banco Bilbao Vizcaya

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. Despite fairly sluggish essential indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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. Despite latest inconsistent performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Bank of America and Banco Bilbao

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

The idea behind Bank of America and Banco Bilbao Vizcaya 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.