Correlation Between Elbit Imaging and Sofwave Medical

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

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

Diversification Opportunities for Elbit Imaging and Sofwave Medical

0.3

Correlation Coefficient

Elbit Imaging  Sofwave Medical

Weak diversification

The 3 months correlation between Elbit and Sofwave is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Elbit Imaging and Sofwave Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sofwave Medical and Elbit Imaging 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 Elbit Imaging are associated (or correlated) with Sofwave Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sofwave Medical has no effect on the direction of Elbit Imaging i.e., Elbit Imaging and Sofwave Medical go up and down completely randomly.

Pair Corralation between Elbit Imaging and Sofwave Medical

Assuming the 90 days trading horizon Elbit Imaging is expected to generate 1.43 times more return on investment than Sofwave Medical. However, Elbit Imaging is 1.43 times more volatile than Sofwave Medical. It trades about 0.18 of its potential returns per unit of risk. Sofwave Medical is currently generating about -0.02 per unit of risk. If you would invest  51,000  in Elbit Imaging on December 1, 2024 and sell it today you would earn a total of  24,000  from holding Elbit Imaging or generate 47.06% return on investment over 90 days.

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

Elbit Imaging  vs.  Sofwave Medical

Elbit Imaging

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Elbit Imaging are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Elbit Imaging unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sofwave Medical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sofwave Medical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sofwave Medical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Elbit Imaging and Sofwave Medical

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

The idea behind Elbit Imaging and Sofwave Medical 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.