Correlation Between Bank of America and Quaker Chemical

Can any of the company-specific risk be diversified away by investing in both Bank of America and Quaker Chemical 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 Quaker Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Verizon Communications and Quaker Chemical, you can compare the effects of market volatilities on Bank of America and Quaker Chemical 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 Quaker Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Quaker Chemical.

Diversification Opportunities for Bank of America and Quaker Chemical

0.2

Correlation Coefficient

Bank of America  Quaker Chemical

Modest diversification

The 3 months correlation between Bank and Quaker is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Quaker Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quaker Chemical 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 Verizon Communications are associated (or correlated) with Quaker Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quaker Chemical has no effect on the direction of Bank of America i.e., Bank of America and Quaker Chemical go up and down completely randomly.

Pair Corralation between Bank of America and Quaker Chemical

Assuming the 90 days trading horizon Bank of America is expected to generate 1.06 times less return on investment than Quaker Chemical. But when comparing it to its historical volatility, Verizon Communications is 1.96 times less risky than Quaker Chemical. It trades about 0.05 of its potential returns per unit of risk. Quaker Chemical is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  14,452  in Quaker Chemical on September 12, 2024 and sell it today you would earn a total of  348.00  from holding Quaker Chemical or generate 2.41% return on investment over 90 days.

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

Verizon Communications  vs.  Quaker Chemical

Verizon Communications

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Bank of America is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Quaker Chemical

Risk-Adjusted Performance

2 of 100

Insignificant

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

Pair Trading with Bank of America and Quaker Chemical

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

The idea behind Verizon Communications and Quaker Chemical 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.