Correlation Between Arad and El Mor

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

By analyzing existing cross correlation between Arad and El Mor Electric Installation, you can compare the effects of market volatilities on Arad and El Mor 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 Arad with a short position of El Mor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arad and El Mor.

Diversification Opportunities for Arad and El Mor

0.75

Correlation Coefficient

Arad  El Mor

Poor diversification

The 3 months correlation between Arad and ELMR is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Arad and El Mor Electric Installation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on El Mor Electric and Arad 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 Arad are associated (or correlated) with El Mor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of El Mor Electric has no effect on the direction of Arad i.e., Arad and El Mor go up and down completely randomly.

Pair Corralation between Arad and El Mor

Assuming the 90 days trading horizon Arad is expected to generate 4.0 times less return on investment than El Mor. But when comparing it to its historical volatility, Arad is 1.41 times less risky than El Mor. It trades about 0.06 of its potential returns per unit of risk. El Mor Electric Installation is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  103,459  in El Mor Electric Installation on August 31, 2024 and sell it today you would earn a total of  16,241  from holding El Mor Electric Installation or generate 15.7% return on investment over 90 days.

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

Arad  vs.  El Mor Electric Installation

Arad

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arad are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Arad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

El Mor Electric

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in El Mor Electric Installation are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, El Mor sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arad and El Mor

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

The idea behind Arad and El Mor Electric Installation 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.