Correlation Between Focused Dynamic and B of A

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Can any of the company-specific risk be diversified away by investing in both Focused Dynamic and B of A 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 Focused Dynamic and B of A into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Focused Dynamic Growth and Bank Of America, you can compare the effects of market volatilities on Focused Dynamic and B of A 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 Focused Dynamic with a short position of B of A. Check out your portfolio center. Please also check ongoing floating volatility patterns of Focused Dynamic and B of A.

Diversification Opportunities for Focused Dynamic and B of A

0.58
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Focused and B of A is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Focused Dynamic Growth 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 Focused Dynamic 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 Focused Dynamic Growth are associated (or correlated) with B of A. 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 Focused Dynamic i.e., Focused Dynamic and B of A go up and down completely randomly.

Pair Corralation between Focused Dynamic and B of A

Assuming the 90 days horizon Focused Dynamic Growth is expected to generate 1.18 times more return on investment than B of A. However, Focused Dynamic is 1.18 times more volatile than Bank Of America. It trades about 0.26 of its potential returns per unit of risk. Bank Of America is currently generating about 0.19 per unit of risk. If you would invest  4,179  in Focused Dynamic Growth on May 21, 2022 and sell it today you would earn a total of  452.00  from holding Focused Dynamic Growth or generate 10.82% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Focused Dynamic Growth  vs.  Bank Of America

 Performance (%) 
       Timeline  
Focused Dynamic Growth 
Focused Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Focused Dynamic Growth are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Focused Dynamic showed solid returns over the last few months and may actually be approaching a breakup point.

Focused Price Channel

Bank Of America 
B of A Performance
0 of 100
Over the last 90 days Bank Of America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, B of A is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

B of A Price Channel

Focused Dynamic and B of A Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Focused Dynamic and B of A

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

Focused Dynamic Growth

Pair trading matchups for Focused Dynamic

The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Focused Dynamic as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Focused Dynamic's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Focused Dynamic's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Focused Dynamic Growth.
The idea behind Focused Dynamic Growth 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.
Check out your portfolio center. 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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