Correlation Between Israel Land and Arad

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

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

Diversification Opportunities for Israel Land and Arad

0.51

Correlation Coefficient

Israel Land  Arad

Very weak diversification

The 3 months correlation between Israel and Arad is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Israel Land Development and Arad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arad and Israel Land 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 Land Development 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 Land i.e., Israel Land and Arad go up and down completely randomly.

Pair Corralation between Israel Land and Arad

Assuming the 90 days trading horizon Israel Land Development is expected to under-perform the Arad. In addition to that, Israel Land is 1.14 times more volatile than Arad. It trades about -0.09 of its total potential returns per unit of risk. Arad is currently generating about 0.04 per unit of volatility. If you would invest  490,100  in Arad on December 29, 2024 and sell it today you would earn a total of  13,700  from holding Arad or generate 2.8% return on investment over 90 days.

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

Israel Land Development  vs.  Arad

Israel Land Development

Risk-Adjusted Performance

Very Weak

Over the last 90 days Israel Land Development has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company 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 Land and Arad

The main advantage of trading using opposite Israel Land and Arad positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Israel Land 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 Land Development 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.