Correlation Between Kafrit and Elbit Systems

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

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

Diversification Opportunities for Kafrit and Elbit Systems

0.41

Correlation Coefficient

Kafrit  Elbit Systems

Very weak diversification

The 3 months correlation between Kafrit and Elbit is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Kafrit and Elbit Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elbit Systems and Kafrit 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 Kafrit are associated (or correlated) with Elbit Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elbit Systems has no effect on the direction of Kafrit i.e., Kafrit and Elbit Systems go up and down completely randomly.

Pair Corralation between Kafrit and Elbit Systems

Assuming the 90 days trading horizon Kafrit is expected to under-perform the Elbit Systems. In addition to that, Kafrit is 1.21 times more volatile than Elbit Systems. It trades about -0.01 of its total potential returns per unit of risk. Elbit Systems is currently generating about 0.34 per unit of volatility. If you would invest  9,495,000  in Elbit Systems on December 30, 2024 and sell it today you would earn a total of  5,055,000  from holding Elbit Systems or generate 53.24% return on investment over 90 days.

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

Kafrit  vs.  Elbit Systems

Kafrit

Risk-Adjusted Performance

Very Weak

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

Elbit Systems

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Elbit Systems are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Elbit Systems sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kafrit and Elbit Systems

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

The idea behind Kafrit and Elbit Systems 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.