Correlation Between United Overseas and Overseas Chinese

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

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

Diversification Opportunities for United Overseas and Overseas Chinese

0.88

Correlation Coefficient

United Overseas  Overseas Chinese

Very poor diversification

The 3 months correlation between United and Overseas is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding United Overseas Bank and Overseas Chinese Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overseas Chinese Banking and United Overseas 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 United Overseas Bank are associated (or correlated) with Overseas Chinese. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overseas Chinese Banking has no effect on the direction of United Overseas i.e., United Overseas and Overseas Chinese go up and down completely randomly.

Pair Corralation between United Overseas and Overseas Chinese

Assuming the 90 days horizon United Overseas is expected to generate 1.63 times less return on investment than Overseas Chinese. But when comparing it to its historical volatility, United Overseas Bank is 1.17 times less risky than Overseas Chinese. It trades about 0.06 of its potential returns per unit of risk. Overseas Chinese Banking is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,629  in Overseas Chinese Banking on September 26, 2024 and sell it today you would earn a total of  894.00  from holding Overseas Chinese Banking or generate 54.88% return on investment over 90 days.

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

United Overseas Bank  vs.  Overseas Chinese Banking

United Overseas Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United Overseas Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, United Overseas is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Overseas Chinese Banking

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Overseas Chinese Banking are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady technical indicators, Overseas Chinese may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with United Overseas and Overseas Chinese

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

The idea behind United Overseas Bank and Overseas Chinese Banking 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.