Can any of the company-specific risk be diversified away by investing in both Oversea Chinese and Truist Financial 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 Oversea Chinese and Truist Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Oversea Chinese Banking and Truist Financial, you can compare the effects of market volatilities on Oversea Chinese and Truist Financial 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 Oversea Chinese with a short position of Truist Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oversea Chinese and Truist Financial.
Diversification Opportunities for Oversea Chinese and Truist Financial
The 3 months correlation between Oversea and Truist is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Oversea Chinese Banking and Truist Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Truist Financial and Oversea Chinese 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 Oversea Chinese Banking are associated (or correlated) with Truist Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Truist Financial has no effect on the direction of Oversea Chinese i.e., Oversea Chinese and Truist Financial go up and down completely randomly.
Pair Corralation between Oversea Chinese and Truist Financial
Assuming the 90 days trading horizon Oversea Chinese Banking is expected to generate 1.35 times more return on investment than Truist Financial. However, Oversea Chinese is 1.35 times more volatile than Truist Financial. It trades about 0.17 of its potential returns per unit of risk. Truist Financial is currently generating about -0.08 per unit of risk. If you would invest 934.00 in Oversea Chinese Banking on March 6, 2024 and sell it today you would earn a total of 52.00 from holding Oversea Chinese Banking or generate 5.57% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Oversea Chinese Banking are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, Oversea Chinese reported solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Truist Financial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Truist Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.