Correlation Between Bank of America and WisdomTree International

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

Diversification Opportunities for Bank of America and WisdomTree International

0.58

Correlation Coefficient

Bank of America  WisdomTree International

Very weak diversification

The 3 months correlation between Bank and WisdomTree is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and WisdomTree International Quali in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree International 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 WisdomTree International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree International has no effect on the direction of Bank of America i.e., Bank of America and WisdomTree International go up and down completely randomly.

Pair Corralation between Bank of America and WisdomTree International

Considering the 90-day investment horizon Bank of America is expected to generate 1.99 times more return on investment than WisdomTree International. However, Bank of America is 1.99 times more volatile than WisdomTree International Quality. It trades about 0.03 of its potential returns per unit of risk. WisdomTree International Quality is currently generating about -0.21 per unit of risk. If you would invest  3,752  in Bank of America on January 30, 2024 and sell it today you would earn a total of  31.00  from holding Bank of America or generate 0.83% return on investment over 90 days.

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

Bank of America  vs.  WisdomTree International Quali

Bank of America

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in May 2024.

WisdomTree International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree International Quality are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, WisdomTree International is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bank of America and WisdomTree International

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

The idea behind Bank of America and WisdomTree International Quality 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.