Correlation Between Oversea Chinese and National Grid

Can any of the company-specific risk be diversified away by investing in both Oversea Chinese and National Grid 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 Oversea Chinese and National Grid into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Oversea Chinese Banking and National Grid PLC, you can compare the effects of market volatilities on Oversea Chinese and National Grid 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 Oversea Chinese with a short position of National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oversea Chinese and National Grid.

Diversification Opportunities for Oversea Chinese and National Grid

-0.5

Correlation Coefficient

Oversea Chinese  National Grid

Very good diversification

The 3 months correlation between Oversea and National is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Oversea Chinese Banking and National Grid PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid PLC and Oversea Chinese 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 Oversea Chinese Banking are associated (or correlated) with National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid PLC has no effect on the direction of Oversea Chinese i.e., Oversea Chinese and National Grid go up and down completely randomly.

Pair Corralation between Oversea Chinese and National Grid

Assuming the 90 days trading horizon Oversea Chinese Banking is expected to generate 0.6 times more return on investment than National Grid. However, Oversea Chinese Banking is 1.66 times less risky than National Grid. It trades about -0.04 of its potential returns per unit of risk. National Grid PLC is currently generating about -0.15 per unit of risk. If you would invest  1,172  in Oversea Chinese Banking on September 24, 2024 and sell it today you would lose (14.00) from holding Oversea Chinese Banking or give up 1.19% of portfolio value over 90 days.

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

Oversea Chinese Banking  vs.  National Grid PLC

Oversea Chinese Banking

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Oversea Chinese Banking are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, Oversea Chinese may actually be approaching a critical reversion point that can send shares even higher in January 2025.

National Grid PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Grid PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Oversea Chinese and National Grid

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

The idea behind Oversea Chinese Banking and National Grid PLC 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.