Correlation Between United Overseas and Wesfarmers
Can any of the company-specific risk be diversified away by investing in both United Overseas and Wesfarmers 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 Wesfarmers 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 Wesfarmers Ltd ADR, you can compare the effects of market volatilities on United Overseas and Wesfarmers 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 Wesfarmers. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Overseas and Wesfarmers.
Diversification Opportunities for United Overseas and Wesfarmers
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between United and Wesfarmers is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding United Overseas Bank and Wesfarmers Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers ADR 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 Wesfarmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wesfarmers ADR has no effect on the direction of United Overseas i.e., United Overseas and Wesfarmers go up and down completely randomly.
Pair Corralation between United Overseas and Wesfarmers
Assuming the 90 days horizon United Overseas Bank is expected to generate 0.76 times more return on investment than Wesfarmers. However, United Overseas Bank is 1.32 times less risky than Wesfarmers. It trades about 0.15 of its potential returns per unit of risk. Wesfarmers Ltd ADR is currently generating about 0.05 per unit of risk. If you would invest 4,433 in United Overseas Bank on August 31, 2024 and sell it today you would earn a total of 1,005 from holding United Overseas Bank or generate 22.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Overseas Bank vs. Wesfarmers Ltd ADR
Performance |
| Timeline |
| United Overseas Bank |
| Wesfarmers ADR |
United Overseas and Wesfarmers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Overseas and Wesfarmers
The main advantage of trading using opposite United Overseas and Wesfarmers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Overseas position performs unexpectedly, Wesfarmers 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 Wesfarmers will offset losses from the drop in Wesfarmers' long position.| United Overseas vs. KBC Groep NV | United Overseas vs. DBS Group Holdings | United Overseas vs. HomeStreet | United Overseas vs. Bank of Hawaii |
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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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