Correlation Between Bank of America and Grupo Gigante

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

Diversification Opportunities for Bank of America and Grupo Gigante

0.6

Correlation Coefficient

Bank of America  Grupo Gigante

Poor diversification

The 3 months correlation between Bank and Grupo is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Grupo Gigante S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Gigante S 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 Grupo Gigante. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Gigante S has no effect on the direction of Bank of America i.e., Bank of America and Grupo Gigante go up and down completely randomly.

Pair Corralation between Bank of America and Grupo Gigante

Assuming the 90 days trading horizon Bank of America is expected to generate 209.04 times more return on investment than Grupo Gigante. However, Bank of America is 209.04 times more volatile than Grupo Gigante S. It trades about 0.09 of its potential returns per unit of risk. Grupo Gigante S is currently generating about -0.22 per unit of risk. If you would invest  62,497  in Bank of America on February 1, 2024 and sell it today you would earn a total of  1,566  from holding Bank of America or generate 2.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Bank of America  vs.  Grupo Gigante S

Bank of America

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Grupo Gigante S

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Gigante S are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Grupo Gigante is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Bank of America and Grupo Gigante

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

The idea behind Bank of America and Grupo Gigante S 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.