Correlation Between Ralph Lauren and B of A

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

Diversification Opportunities for Ralph Lauren and B of A

0.69
  Correlation Coefficient

Poor diversification

The 3 months correlation between Ralph and B of A is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Ralph Lauren Corp 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 Ralph Lauren 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 Ralph Lauren Corp 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 Ralph Lauren i.e., Ralph Lauren and B of A go up and down completely randomly.

Pair Corralation between Ralph Lauren and B of A

Allowing for the 90-day total investment horizon Ralph Lauren Corp is expected to generate 1.42 times more return on investment than B of A. However, Ralph Lauren is 1.42 times more volatile than Bank Of America. It trades about 0.04 of its potential returns per unit of risk. Bank Of America is currently generating about 0.05 per unit of risk. If you would invest  6,666  in Ralph Lauren Corp on May 21, 2022 and sell it today you would earn a total of  3,140  from holding Ralph Lauren Corp or generate 47.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Ralph Lauren Corp  vs.  Bank Of America

 Performance (%) 
       Timeline  
Ralph Lauren Corp 
Ralph Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Ralph Lauren Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak essential indicators, Ralph Lauren may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Ralph 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

Ralph Lauren and B of A Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ralph Lauren and B of A

The main advantage of trading using opposite Ralph Lauren and B of A positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ralph Lauren 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 Ralph Lauren Corp 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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