Correlation Between Delek and Castro

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

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

Diversification Opportunities for Delek and Castro

0.87

Correlation Coefficient

Delek  Castro

Very poor diversification

The 3 months correlation between Delek and Castro is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Delek Group and Castro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Castro and Delek 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 Delek Group are associated (or correlated) with Castro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Castro has no effect on the direction of Delek i.e., Delek and Castro go up and down completely randomly.

Pair Corralation between Delek and Castro

Assuming the 90 days trading horizon Delek is expected to generate 1.16 times less return on investment than Castro. But when comparing it to its historical volatility, Delek Group is 1.26 times less risky than Castro. It trades about 0.26 of its potential returns per unit of risk. Castro is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  730,300  in Castro on September 13, 2024 and sell it today you would earn a total of  193,700  from holding Castro or generate 26.52% return on investment over 90 days.

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

Delek Group  vs.  Castro

Delek Group

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Delek Group are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Delek unveiled solid returns over the last few months and may actually be approaching a breakup point.

Castro

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Castro are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Castro sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Delek and Castro

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

The idea behind Delek Group and Castro 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.