Correlation Between Petrochemical and Israel Opportunity

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

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

Diversification Opportunities for Petrochemical and Israel Opportunity

0.7

Correlation Coefficient

Petrochemical  Israel Opportunity

Poor diversification

The 3 months correlation between Petrochemical and Israel is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Petrochemical and Israel Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Israel Opportunity and Petrochemical 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 Petrochemical are associated (or correlated) with Israel Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Israel Opportunity has no effect on the direction of Petrochemical i.e., Petrochemical and Israel Opportunity go up and down completely randomly.

Pair Corralation between Petrochemical and Israel Opportunity

Assuming the 90 days trading horizon Petrochemical is expected to generate 3.15 times less return on investment than Israel Opportunity. But when comparing it to its historical volatility, Petrochemical is 2.84 times less risky than Israel Opportunity. It trades about 0.11 of its potential returns per unit of risk. Israel Opportunity is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  7,320  in Israel Opportunity on November 28, 2024 and sell it today you would earn a total of  2,680  from holding Israel Opportunity or generate 36.61% return on investment over 90 days.

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

Petrochemical  vs.  Israel Opportunity

Petrochemical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Petrochemical are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Petrochemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Israel Opportunity

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Israel Opportunity are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Israel Opportunity sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petrochemical and Israel Opportunity

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

The idea behind Petrochemical and Israel Opportunity 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.