Correlation Between Bank of America and Canadian Life

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

Diversification Opportunities for Bank of America and Canadian Life

0.88

Correlation Coefficient

Bank of America  Canadian Life

Very poor diversification

The 3 months correlation between Bank and Canadian is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Canadian Life Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Life Companies 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 Canadian Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Life Companies has no effect on the direction of Bank of America i.e., Bank of America and Canadian Life go up and down completely randomly.

Pair Corralation between Bank of America and Canadian Life

Assuming the 90 days trading horizon Bank of America is expected to generate 5.43 times more return on investment than Canadian Life. However, Bank of America is 5.43 times more volatile than Canadian Life Companies. It trades about 0.09 of its potential returns per unit of risk. Canadian Life Companies is currently generating about 0.15 per unit of risk. If you would invest  2,070  in Bank of America on September 21, 2024 and sell it today you would earn a total of  183.00  from holding Bank of America or generate 8.84% return on investment over 90 days.

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

Bank of America  vs.  Canadian Life Companies

Bank of America

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Canadian Life Companies

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Life Companies are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Canadian Life is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank of America and Canadian Life

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

The idea behind Bank of America and Canadian Life Companies 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.