Can any of the company-specific risk be diversified away by investing in both Israel Discount 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 Israel Discount and Fox Wizel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Israel Discount Bank and Fox Wizel, you can compare the effects of market volatilities on Israel Discount 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 Israel Discount with a short position of Fox Wizel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Israel Discount and Fox Wizel.
Diversification Opportunities for Israel Discount and Fox Wizel
The 3 months correlation between Israel and Fox is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Israel Discount Bank and Fox Wizel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fox Wizel and Israel Discount 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 Israel Discount Bank 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 Israel Discount i.e., Israel Discount and Fox Wizel go up and down completely randomly.
Pair Corralation between Israel Discount and Fox Wizel
Assuming the 90 days trading horizon Israel Discount Bank is expected to generate 0.66 times more return on investment than Fox Wizel. However, Israel Discount Bank is 1.53 times less risky than Fox Wizel. It trades about 0.3 of its potential returns per unit of risk. Fox Wizel is currently generating about -0.24 per unit of risk. If you would invest 183,611 in Israel Discount Bank on March 6, 2024 and sell it today you would earn a total of 13,089 from holding Israel Discount Bank or generate 7.13% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Israel Discount Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Israel Discount may actually be approaching a critical reversion point that can send shares even higher in July 2024.
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.