Correlation Between Bank of America and Obsidian Energy

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

Diversification Opportunities for Bank of America and Obsidian Energy

0.81

Correlation Coefficient

Bank of America  Obsidian Energy

Very poor diversification

The 3 months correlation between Bank and Obsidian is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Obsidian Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Obsidian Energy 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 Obsidian Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Obsidian Energy has no effect on the direction of Bank of America i.e., Bank of America and Obsidian Energy go up and down completely randomly.

Pair Corralation between Bank of America and Obsidian Energy

Assuming the 90 days trading horizon Bank of America is expected to generate 1.25 times less return on investment than Obsidian Energy. But when comparing it to its historical volatility, Bank of America is 2.58 times less risky than Obsidian Energy. It trades about 0.25 of its potential returns per unit of risk. Obsidian Energy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  623.00  in Obsidian Energy on April 24, 2025 and sell it today you would earn a total of  145.00  from holding Obsidian Energy or generate 23.27% return on investment over 90 days.

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

Bank of America  vs.  Obsidian Energy

Bank of America

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.

Obsidian Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Obsidian Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Obsidian Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and Obsidian Energy

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

The idea behind Bank of America and Obsidian Energy 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.