Correlation Between New Momentum and El Al

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

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

Diversification Opportunities for New Momentum and El Al

0.11

Correlation Coefficient

New Momentum  El Al

Average diversification

The 3 months correlation between New and ELALF is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding New Momentum and El Al Israel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on El Al Israel and New Momentum 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 New Momentum are associated (or correlated) with El Al. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of El Al Israel has no effect on the direction of New Momentum i.e., New Momentum and El Al go up and down completely randomly.

Pair Corralation between New Momentum and El Al

Given the investment horizon of 90 days New Momentum is expected to generate 5.05 times more return on investment than El Al. However, New Momentum is 5.05 times more volatile than El Al Israel. It trades about 0.05 of its potential returns per unit of risk. El Al Israel is currently generating about 0.14 per unit of risk. If you would invest  0.05  in New Momentum on December 19, 2024 and sell it today you would earn a total of  0.00  from holding New Momentum or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.65%
Values	Daily Returns

New Momentum  vs.  El Al Israel

New Momentum

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in New Momentum are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, New Momentum showed solid returns over the last few months and may actually be approaching a breakup point.

El Al Israel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in El Al Israel are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting essential indicators, El Al reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with New Momentum and El Al

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

The idea behind New Momentum and El Al Israel 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 Global Correlations module to find global opportunities by holding instruments from different markets.