Correlation Between B of A and Big 5

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Can any of the company-specific risk be diversified away by investing in both B of A and Big 5 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 Big 5 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 Big 5 Sporting, you can compare the effects of market volatilities on B of A and Big 5 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 Big 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of B of A and Big 5.

Diversification Opportunities for B of A and Big 5

  Correlation Coefficient

Poor diversification

The 3 months correlation between B of A and Big 5 is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Bank Of America and Big 5 Sporting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big 5 Sporting 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 Big 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big 5 Sporting has no effect on the direction of B of A i.e., B of A and Big 5 go up and down completely randomly.

Pair Corralation between B of A and Big 5

Considering the 90-day investment horizon Bank Of America is expected to generate 0.88 times more return on investment than Big 5. However, Bank Of America is 1.13 times less risky than Big 5. It trades about -0.17 of its potential returns per unit of risk. Big 5 Sporting is currently generating about -0.34 per unit of risk. If you would invest  3,381  in Bank Of America on June 27, 2022 and sell it today you would lose (208.00)  from holding Bank Of America or give up 6.15% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
ValuesDaily Returns

Bank Of America  vs.  Big 5 Sporting

 Performance (%) 
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 current stock price disturbance, may contribute to short-term losses for the investors.

B of A Price Channel

Big 5 Sporting 
Big 5 Performance
0 of 100
Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Big 5 is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Big 5 Price Channel

B of A and Big 5 Volatility Contrast

   Predicted Return Density   

Pair Trading with B of A and Big 5

The main advantage of trading using opposite B of A and Big 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if B of A position performs unexpectedly, Big 5 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 Big 5 will offset losses from the drop in Big 5's long position.
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The idea behind Bank Of America and Big 5 Sporting 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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