Correlation Between General Electric and B of A

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

Diversification Opportunities for General Electric and B of A

0.92
  Correlation Coefficient

Almost no diversification

The 3 months correlation between General and B of A is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding General Electric 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 General Electric 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 General Electric 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 General Electric i.e., General Electric and B of A go up and down completely randomly.

Pair Corralation between General Electric and B of A

Allowing for the 90-day total investment horizon General Electric is expected to generate 1.06 times more return on investment than B of A. However, General Electric is 1.06 times more volatile 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  6,567  in General Electric on May 20, 2022 and sell it today you would earn a total of  1,354  from holding General Electric or generate 20.62% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

General Electric  vs.  Bank Of America

 Performance (%) 
       Timeline  
General Electric 
General Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, General Electric may actually be approaching a critical reversion point that can send shares even higher in September 2022.

General Price Channel

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

General Electric and B of A Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and B of A

The main advantage of trading using opposite General Electric and B of A positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric 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.
The idea behind General Electric 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 Analyst Recommendations module to analyst recommendations and target price estimates broken down by several categories.

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