Correlation Between Oil and United Bank

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

By analyzing existing cross correlation between Oil and Gas and United Bank, you can compare the effects of market volatilities on Oil and United Bank 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 Oil with a short position of United Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil and United Bank.

Diversification Opportunities for Oil and United Bank

-0.47

Correlation Coefficient

Oil  United Bank

Very good diversification

The 3 months correlation between Oil and United is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Oil and Gas and United Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Bank and Oil 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 Oil and Gas are associated (or correlated) with United Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Bank has no effect on the direction of Oil i.e., Oil and United Bank go up and down completely randomly.

Pair Corralation between Oil and United Bank

Assuming the 90 days trading horizon Oil is expected to generate 1.93 times less return on investment than United Bank. In addition to that, Oil is 1.16 times more volatile than United Bank. It trades about 0.05 of its total potential returns per unit of risk. United Bank is currently generating about 0.11 per unit of volatility. If you would invest  36,801  in United Bank on December 29, 2024 and sell it today you would earn a total of  4,288  from holding United Bank or generate 11.65% return on investment over 90 days.

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

Oil and Gas  vs.  United Bank

Oil and Gas

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Oil is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

United Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, United Bank may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Oil and United Bank

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

The idea behind Oil and Gas and United Bank 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..