Correlation Between Bank of America and Credit Acceptance

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

Diversification Opportunities for Bank of America and Credit Acceptance

-0.46

Correlation Coefficient

Bank of America  Credit Acceptance

Very good diversification

The 3 months correlation between Bank and Credit is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Credit Acceptance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Credit Acceptance 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 Credit Acceptance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Credit Acceptance has no effect on the direction of Bank of America i.e., Bank of America and Credit Acceptance go up and down completely randomly.

Pair Corralation between Bank of America and Credit Acceptance

Considering the 90-day investment horizon Bank of America is expected to generate 0.82 times more return on investment than Credit Acceptance. However, Bank of America is 1.22 times less risky than Credit Acceptance. It trades about 0.0 of its potential returns per unit of risk. Credit Acceptance is currently generating about -0.1 per unit of risk. If you would invest  3,792  in Bank of America on January 28, 2024 and sell it today you would lose (9.00) from holding Bank of America or give up 0.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Bank of America  vs.  Credit Acceptance

Bank of America

Risk-Adjusted Performance

11 of 100

Good

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 rather unsteady basic indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.

Credit Acceptance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Credit Acceptance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Credit Acceptance 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 Credit Acceptance

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

The idea behind Bank of America and Credit Acceptance 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.