Correlation Between Eltek and American Aires

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

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

Diversification Opportunities for Eltek and American Aires

-0.29

Correlation Coefficient

Eltek  American Aires

Very good diversification

The 3 months correlation between Eltek and American is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Eltek and American Aires in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Aires and Eltek 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 Eltek are associated (or correlated) with American Aires. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Aires has no effect on the direction of Eltek i.e., Eltek and American Aires go up and down completely randomly.

Pair Corralation between Eltek and American Aires

Given the investment horizon of 90 days Eltek is expected to generate 0.48 times more return on investment than American Aires. However, Eltek is 2.07 times less risky than American Aires. It trades about 0.02 of its potential returns per unit of risk. American Aires is currently generating about -0.06 per unit of risk. If you would invest  1,101  in Eltek on September 16, 2024 and sell it today you would earn a total of  1.00  from holding Eltek or generate 0.09% return on investment over 90 days.

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

Eltek  vs.  American Aires

Eltek

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eltek are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Eltek is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

American Aires

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Aires has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Eltek and American Aires

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

The idea behind Eltek and American Aires 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.