Correlation Between Visa and Bank of America

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

Diversification Opportunities for Visa and Bank of America

0.95

Correlation Coefficient

Visa  Bank of America

Almost no diversification

The 3 months correlation between Visa and Bank is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Visa Inc 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 Visa 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 Visa Inc 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 Visa i.e., Visa and Bank of America go up and down completely randomly.

Pair Corralation between Visa and Bank of America

Given the investment horizon of 90 days Visa Inc is expected to generate 0.66 times more return on investment than Bank of America. However, Visa Inc is 1.51 times less risky than Bank of America. It trades about 0.24 of its potential returns per unit of risk. Bank of America is currently generating about 0.14 per unit of risk. If you would invest  543,495  in Visa Inc on September 27, 2024 and sell it today you would earn a total of  104,653  from holding Visa Inc or generate 19.26% return on investment over 90 days.

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

Visa Inc  vs.  Bank of America

Visa Inc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Inc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

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 Visa and Bank of America

The main advantage of trading using opposite Visa and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Inc 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.