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
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Oil and United is 0.93. 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 1.14 times less return on investment than United Bank. In addition to that, Oil is 1.24 times more volatile than United Bank. It trades about 0.17 of its total potential returns per unit of risk. United Bank is currently generating about 0.24 per unit of volatility. If you would invest 20,439 in United Bank on August 30, 2024 and sell it today you would earn a total of 13,113 from holding United Bank or generate 64.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Oil and Gas vs. United Bank
Performance |
| Timeline |
| Oil and Gas |
| United Bank |
Oil and United Bank Volatility Contrast
Predicted Return Density |
| Returns |
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.| United Bank vs. Shaheen Insurance | United Bank vs. Unity Foods | United Bank vs. TPL Insurance | United Bank vs. AKD Hospitality |
Check out your portfolio center.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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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