Correlation Between Bank of America and Income Financial

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

Diversification Opportunities for Bank of America and Income Financial

0.94

Correlation Coefficient

Bank of America  Income Financial

Almost no diversification

The 3 months correlation between Bank and Income is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Income Financial Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Financial Trust 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 Income Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Financial Trust has no effect on the direction of Bank of America i.e., Bank of America and Income Financial go up and down completely randomly.

Pair Corralation between Bank of America and Income Financial

Assuming the 90 days trading horizon Bank of America is expected to under-perform the Income Financial. But the stock apears to be less risky and, when comparing its historical volatility, Bank of America is 1.14 times less risky than Income Financial. The stock trades about -0.25 of its potential returns per unit of risk. The Income Financial Trust is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  871.00  in Income Financial Trust on September 25, 2024 and sell it today you would lose (15.00) from holding Income Financial Trust or give up 1.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Bank of America  vs.  Income Financial Trust

Bank of America

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Income Financial Trust

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Income Financial Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental indicators, Income Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bank of America and Income Financial

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

The idea behind Bank of America and Income Financial Trust 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.