Correlation Between Tel Aviv and Psagot Index

Can any of the company-specific risk be diversified away by investing in both Tel Aviv and Psagot Index 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 Psagot Index 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 Psagot Index Funds, you can compare the effects of market volatilities on Tel Aviv and Psagot Index 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 Psagot Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tel Aviv and Psagot Index.

Diversification Opportunities for Tel Aviv and Psagot Index

-0.95

Correlation Coefficient

Tel Aviv  Psagot Index

Pay attention - limited upside

The 3 months correlation between Tel and Psagot is -0.95. Overlapping area represents the amount of risk that can be diversified away by holding Tel Aviv 35 and Psagot Index Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Psagot Index Funds 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 Psagot Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Psagot Index Funds has no effect on the direction of Tel Aviv i.e., Tel Aviv and Psagot Index go up and down completely randomly.

Pair Corralation between Tel Aviv and Psagot Index

Assuming the 90 days trading horizon Tel Aviv 35 is expected to generate 0.37 times more return on investment than Psagot Index. However, Tel Aviv 35 is 2.68 times less risky than Psagot Index. It trades about 0.29 of its potential returns per unit of risk. Psagot Index Funds is currently generating about -0.61 per unit of risk. If you would invest  220,783  in Tel Aviv 35 on September 5, 2024 and sell it today you would earn a total of  10,769  from holding Tel Aviv 35 or generate 4.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Tel Aviv 35  vs.  Psagot Index Funds

Pair Trading with Tel Aviv and Psagot Index

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

The idea behind Tel Aviv 35 and Psagot Index Funds 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.