Correlation Between Tel Aviv and Isras Investment

Can any of the company-specific risk be diversified away by investing in both Tel Aviv and Isras Investment 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 Tel Aviv and Isras Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tel Aviv 35 and Isras Investment, you can compare the effects of market volatilities on Tel Aviv and Isras Investment 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 Tel Aviv with a short position of Isras Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tel Aviv and Isras Investment.

Diversification Opportunities for Tel Aviv and Isras Investment

-0.13

Correlation Coefficient

Tel Aviv  Isras Investment

Good diversification

The 3 months correlation between Tel and Isras is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Tel Aviv 35 and Isras Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Isras Investment and Tel Aviv 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 Tel Aviv 35 are associated (or correlated) with Isras Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Isras Investment has no effect on the direction of Tel Aviv i.e., Tel Aviv and Isras Investment go up and down completely randomly.

Pair Corralation between Tel Aviv and Isras Investment

Assuming the 90 days trading horizon Tel Aviv 35 is expected to generate 0.69 times more return on investment than Isras Investment. However, Tel Aviv 35 is 1.45 times less risky than Isras Investment. It trades about 0.03 of its potential returns per unit of risk. Isras Investment is currently generating about -0.02 per unit of risk. If you would invest  194,293  in Tel Aviv 35 on February 23, 2024 and sell it today you would earn a total of  2,829  from holding Tel Aviv 35 or generate 1.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Tel Aviv 35  vs.  Isras Investment

Pair Trading with Tel Aviv and Isras Investment

The main advantage of trading using opposite Tel Aviv and Isras Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tel Aviv position performs unexpectedly, Isras Investment 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 Isras Investment will offset losses from the drop in Isras Investment's long position.

The idea behind Tel Aviv 35 and Isras Investment pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.