Correlation Between Direct Capital and Israel China

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

By analyzing existing cross correlation between Direct Capital Investments and Israel China Biotechnology, you can compare the effects of market volatilities on Direct Capital and Israel China 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 Direct Capital with a short position of Israel China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Capital and Israel China.

Diversification Opportunities for Direct Capital and Israel China

0.19

Correlation Coefficient

Direct Capital  Israel China

Average diversification

The 3 months correlation between Direct and Israel is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Direct Capital Investments and Israel China Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Israel China Biotech and Direct Capital 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 Direct Capital Investments are associated (or correlated) with Israel China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Israel China Biotech has no effect on the direction of Direct Capital i.e., Direct Capital and Israel China go up and down completely randomly.

Pair Corralation between Direct Capital and Israel China

Assuming the 90 days trading horizon Direct Capital Investments is expected to under-perform the Israel China. But the stock apears to be less risky and, when comparing its historical volatility, Direct Capital Investments is 1.23 times less risky than Israel China. The stock trades about -0.13 of its potential returns per unit of risk. The Israel China Biotechnology is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  51,000  in Israel China Biotechnology on October 20, 2024 and sell it today you would earn a total of  3,200  from holding Israel China Biotechnology or generate 6.27% return on investment over 90 days.

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

Direct Capital Investments  vs.  Israel China Biotechnology

Direct Capital Inves

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direct Capital Investments 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 forward indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Israel China Biotech

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Israel China Biotechnology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Israel China sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direct Capital and Israel China

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

The idea behind Direct Capital Investments and Israel China Biotechnology 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.