Correlation Between Israel China and Arad

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

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

Diversification Opportunities for Israel China and Arad

0.46

Correlation Coefficient

Israel China  Arad

Very weak diversification

The 3 months correlation between Israel and Arad is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Israel China Biotechnology and Arad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arad and Israel China 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 Israel China Biotechnology are associated (or correlated) with Arad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arad has no effect on the direction of Israel China i.e., Israel China and Arad go up and down completely randomly.

Pair Corralation between Israel China and Arad

Assuming the 90 days trading horizon Israel China Biotechnology is expected to under-perform the Arad. In addition to that, Israel China is 4.7 times more volatile than Arad. It trades about -0.01 of its total potential returns per unit of risk. Arad is currently generating about 0.04 per unit of volatility. If you would invest  497,000  in Arad on November 29, 2024 and sell it today you would earn a total of  12,600  from holding Arad or generate 2.54% return on investment over 90 days.

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

Israel China Biotechnology  vs.  Arad

Israel China Biotech

Risk-Adjusted Performance

Very Weak

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

Arad

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arad are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Arad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Israel China and Arad

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

The idea behind Israel China Biotechnology and Arad 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.