Correlation Between IsraelLtd and Sika AG

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

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

Diversification Opportunities for IsraelLtd and Sika AG

-0.14

Correlation Coefficient

IsraelLtd  Sika AG

Good diversification

The 3 months correlation between IsraelLtd and Sika is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Israel and Sika AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sika AG ADR and IsraelLtd 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 are associated (or correlated) with Sika AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sika AG ADR has no effect on the direction of IsraelLtd i.e., IsraelLtd and Sika AG go up and down completely randomly.

Pair Corralation between IsraelLtd and Sika AG

Assuming the 90 days horizon Israel is expected to generate 7.23 times more return on investment than Sika AG. However, IsraelLtd is 7.23 times more volatile than Sika AG ADR. It trades about 0.08 of its potential returns per unit of risk. Sika AG ADR is currently generating about 0.05 per unit of risk. If you would invest  24,700  in Israel on December 29, 2024 and sell it today you would earn a total of  3,800  from holding Israel or generate 15.38% return on investment over 90 days.

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

Israel  vs.  Sika AG ADR

IsraelLtd

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Israel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, IsraelLtd reported solid returns over the last few months and may actually be approaching a breakup point.

Sika AG ADR

Risk-Adjusted Performance

Insignificant

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

Pair Trading with IsraelLtd and Sika AG

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

The idea behind Israel and Sika AG ADR 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.