Can any of the company-specific risk be diversified away by investing in both Clal Insurance and Fox Wizel 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 Clal Insurance and Fox Wizel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Clal Insurance Enterprises and Fox Wizel, you can compare the effects of market volatilities on Clal Insurance and Fox Wizel 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 Clal Insurance with a short position of Fox Wizel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Clal Insurance and Fox Wizel.
Diversification Opportunities for Clal Insurance and Fox Wizel
The 3 months correlation between Clal and Fox is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Clal Insurance Enterprises and Fox Wizel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fox Wizel and Clal Insurance 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 Clal Insurance Enterprises are associated (or correlated) with Fox Wizel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fox Wizel has no effect on the direction of Clal Insurance i.e., Clal Insurance and Fox Wizel go up and down completely randomly.
Pair Corralation between Clal Insurance and Fox Wizel
Assuming the 90 days trading horizon Clal Insurance Enterprises is expected to under-perform the Fox Wizel. But the stock apears to be less risky and, when comparing its historical volatility, Clal Insurance Enterprises is 1.17 times less risky than Fox Wizel. The stock trades about -0.13 of its potential returns per unit of risk. The Fox Wizel is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest 2,944,153 in Fox Wizel on March 6, 2024 and sell it today you would lose (242,153) from holding Fox Wizel or give up 8.22% of portfolio value over 90 days.
Over the last 90 days Clal Insurance Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
Over the last 90 days Fox Wizel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.