Correlation Between B of A and Growth Fund

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

Diversification Opportunities for B of A and Growth Fund

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between B of A and Growth is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bank Of America and The Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Fund 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 Growth Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Fund has no effect on the direction of B of A i.e., B of A and Growth Fund go up and down completely randomly.

Pair Corralation between B of A and Growth Fund

Considering the 90-day investment horizon B of A is expected to generate 1.33 times less return on investment than Growth Fund. In addition to that, B of A is 1.28 times more volatile than The Growth Fund. It trades about 0.14 of its total potential returns per unit of risk. The Growth Fund is currently generating about 0.24 per unit of volatility. If you would invest  4,607  in The Growth Fund on May 20, 2022 and sell it today you would earn a total of  657.00  from holding The Growth Fund or generate 14.26% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy97.62%
ValuesDaily Returns

Bank Of America  vs.  The Growth Fund

 Performance (%) 
       Timeline  
Bank Of America 
B of A Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Bank Of America are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, B of A may actually be approaching a critical reversion point that can send shares even higher in September 2022.

B of A Price Channel

Growth Fund 
Growth Performance
0 of 100
Over the last 90 days The Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak fundamental indicators, Growth Fund may actually be approaching a critical reversion point that can send shares even higher in September 2022.

B of A and Growth Fund Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with B of A and Growth Fund

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

The Growth Fund

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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 Growth Fund 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. Growth Fund'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, Growth Fund'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 The Growth Fund.
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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