Correlation Between United States and United Overseas

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

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

Diversification Opportunities for United States and United Overseas

0.75

Correlation Coefficient

United States  United Overseas

Poor diversification

The 3 months correlation between United and United is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding United States Cellular and United Overseas Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Overseas Bank and United States 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 States Cellular are associated (or correlated) with United Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Overseas Bank has no effect on the direction of United States i.e., United States and United Overseas go up and down completely randomly.

Pair Corralation between United States and United Overseas

Assuming the 90 days horizon United States Cellular is expected to generate 2.72 times more return on investment than United Overseas. However, United States is 2.72 times more volatile than United Overseas Bank. It trades about 0.06 of its potential returns per unit of risk. United Overseas Bank is currently generating about 0.12 per unit of risk. If you would invest  4,260  in United States Cellular on October 22, 2024 and sell it today you would earn a total of  1,790  from holding United States Cellular or generate 42.02% return on investment over 90 days.

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

United States Cellular  vs.  United Overseas Bank

United States Cellular

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United States Cellular are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, United States may actually be approaching a critical reversion point that can send shares even higher in February 2025.

United Overseas Bank

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Overseas Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, United Overseas reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United States and United Overseas

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

The idea behind United States Cellular and United Overseas 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.