Correlation Between B of A and American Beacon

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

Diversification Opportunities for B of A and American Beacon

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between B of A and American is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Bank Of America and American Beacon Mid-Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Mid-Cap and B of A 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 American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Mid-Cap has no effect on the direction of B of A i.e., B of A and American Beacon go up and down completely randomly.

Pair Corralation between B of A and American Beacon

Considering the 90-day investment horizon Bank Of America is expected to generate 1.08 times more return on investment than American Beacon. However, B of A is 1.08 times more volatile than American Beacon Mid-Cap. It trades about -0.06 of its potential returns per unit of risk. American Beacon Mid-Cap is currently generating about -0.09 per unit of risk. If you would invest  3,327  in Bank Of America on July 9, 2022 and sell it today you would lose (181.00)  from holding Bank Of America or give up 5.44% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Bank Of America  vs.  American Beacon Mid-Cap

 Performance (%) 
       Timeline  
Bank Of America 
B of A Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Bank Of America are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, B of A is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

B of A Price Channel

American Beacon Mid-Cap 
American Performance
0 of 100
Over the last 90 days American Beacon Mid-Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, American Beacon is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

American Price Channel

B of A and American Beacon Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with B of A and American Beacon

The main advantage of trading using opposite B of A and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if B of A position performs unexpectedly, American Beacon 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 American Beacon will offset losses from the drop in American Beacon's long position.
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The idea behind Bank Of America and American Beacon Mid-Cap 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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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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