Correlation Between Formula Systems and Ituran Location

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

By analyzing existing cross correlation between Formula Systems 1985 and Ituran Location and, you can compare the effects of market volatilities on Formula Systems and Ituran Location 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 Formula Systems with a short position of Ituran Location. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formula Systems and Ituran Location.

Diversification Opportunities for Formula Systems and Ituran Location

0.62

Correlation Coefficient

Formula Systems  Ituran Location

Poor diversification

The 3 months correlation between Formula and Ituran is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Formula Systems 1985 and Ituran Location and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ituran Location and Formula Systems 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 Formula Systems 1985 are associated (or correlated) with Ituran Location. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ituran Location has no effect on the direction of Formula Systems i.e., Formula Systems and Ituran Location go up and down completely randomly.

Pair Corralation between Formula Systems and Ituran Location

Assuming the 90 days horizon Formula Systems is expected to generate 12.34 times less return on investment than Ituran Location. But when comparing it to its historical volatility, Formula Systems 1985 is 1.4 times less risky than Ituran Location. It trades about 0.01 of its potential returns per unit of risk. Ituran Location and is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,946  in Ituran Location and on December 29, 2024 and sell it today you would earn a total of  712.00  from holding Ituran Location and or generate 24.17% return on investment over 90 days.

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

Formula Systems 1985  vs.  Ituran Location and

Formula Systems 1985

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Formula Systems 1985 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Formula Systems is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Ituran Location

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ituran Location and are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Ituran Location displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Formula Systems and Ituran Location

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

The idea behind Formula Systems 1985 and Ituran Location and 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.