Can any of the company-specific risk be diversified away by investing in both Elbit Systems and Ormat Technologies 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 Elbit Systems and Ormat Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Elbit Systems and Ormat Technologies, you can compare the effects of market volatilities on Elbit Systems and Ormat Technologies 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 Elbit Systems with a short position of Ormat Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elbit Systems and Ormat Technologies.
Diversification Opportunities for Elbit Systems and Ormat Technologies
The 3 months correlation between Elbit and Ormat is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Elbit Systems and Ormat Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ormat Technologies and Elbit Systems 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 Elbit Systems are associated (or correlated) with Ormat Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ormat Technologies has no effect on the direction of Elbit Systems i.e., Elbit Systems and Ormat Technologies go up and down completely randomly.
Pair Corralation between Elbit Systems and Ormat Technologies
Assuming the 90 days trading horizon Elbit Systems is expected to under-perform the Ormat Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Elbit Systems is 1.46 times less risky than Ormat Technologies. The stock trades about -0.11 of its potential returns per unit of risk. The Ormat Technologies is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 2,343,936 in Ormat Technologies on March 6, 2024 and sell it today you would earn a total of 433,064 from holding Ormat Technologies or generate 18.48% return on investment over 90 days.
Over the last 90 days Elbit Systems 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.
Compared to the overall equity markets, risk-adjusted returns on investments in Ormat Technologies are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ormat Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.