Correlation Between Bank of America and Vanguard Short-term

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

Diversification Opportunities for Bank of America and Vanguard Short-term

-0.5

Correlation Coefficient

Bank of America  Vanguard Short-term

Very good diversification

The 3 months correlation between Bank and Vanguard is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Vanguard Short Term Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Short Term 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 Vanguard Short-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Short Term has no effect on the direction of Bank of America i.e., Bank of America and Vanguard Short-term go up and down completely randomly.

Pair Corralation between Bank of America and Vanguard Short-term

Considering the 90-day investment horizon Bank of America is expected to generate 11.35 times more return on investment than Vanguard Short-term. However, Bank of America is 11.35 times more volatile than Vanguard Short Term Investment Grade. It trades about 0.19 of its potential returns per unit of risk. Vanguard Short Term Investment Grade is currently generating about 0.01 per unit of risk. If you would invest  3,969  in Bank of America on August 28, 2024 and sell it today you would earn a total of  806.00  from holding Bank of America or generate 20.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Bank of America  vs.  Vanguard Short Term Investment

Bank of America

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Bank of America exhibited solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Short Term Investment Grade has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Short-term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank of America and Vanguard Short-term

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

The idea behind Bank of America and Vanguard Short Term Investment Grade 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.