Correlation Between Arad and Israel Land

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

By analyzing existing cross correlation between Arad and Israel Land Development, you can compare the effects of market volatilities on Arad and Israel Land 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 Israel Land. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arad and Israel Land.

Diversification Opportunities for Arad and Israel Land

0.22

Correlation Coefficient

Arad  Israel Land

Modest diversification

The 3 months correlation between Arad and Israel is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Arad and Israel Land Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Israel Land Development 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 Israel Land. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Israel Land Development has no effect on the direction of Arad i.e., Arad and Israel Land go up and down completely randomly.

Pair Corralation between Arad and Israel Land

Assuming the 90 days trading horizon Arad is expected to generate 0.84 times more return on investment than Israel Land. However, Arad is 1.18 times less risky than Israel Land. It trades about 0.03 of its potential returns per unit of risk. Israel Land Development is currently generating about -0.22 per unit of risk. If you would invest  497,000  in Arad on November 30, 2024 and sell it today you would earn a total of  8,000  from holding Arad or generate 1.61% return on investment over 90 days.

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

Arad  vs.  Israel Land Development

Arad

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arad are ranked lower than 2 (%) 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.

Israel Land Development

Risk-Adjusted Performance

Very Weak

Over the last 90 days Israel Land Development has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Arad and Israel Land

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

The idea behind Arad and Israel Land Development 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.

Check out your portfolio center.

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.