Correlation Between Bank of America and Royal Bank

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

Diversification Opportunities for Bank of America and Royal Bank

0.69

Correlation Coefficient

Bank of America  Royal Bank

Poor diversification

The 3 months correlation between Bank and Royal is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Royal Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Bank and Bank of America 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 Royal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Bank has no effect on the direction of Bank of America i.e., Bank of America and Royal Bank go up and down completely randomly.

Pair Corralation between Bank of America and Royal Bank

Considering the 90-day investment horizon Bank of America is expected to generate 1.41 times more return on investment than Royal Bank. However, Bank of America is 1.41 times more volatile than Royal Bank of. It trades about 0.13 of its potential returns per unit of risk. Royal Bank of is currently generating about 0.02 per unit of risk. If you would invest  3,324  in Bank of America on February 2, 2024 and sell it today you would earn a total of  371.00  from holding Bank of America or generate 11.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Bank of America  vs.  Royal Bank of

Bank of America

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Royal Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Bank of are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Royal Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank of America and Royal Bank

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

The idea behind Bank of America and Royal Bank of 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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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 the Volatility Analysis module to get historical volatility and risk analysis based on latest market data.