Correlation Between Petrochemical and Tel Aviv

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

By analyzing existing cross correlation between Petrochemical and Tel Aviv 35, you can compare the effects of market volatilities on Petrochemical and Tel Aviv 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 Tel Aviv. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petrochemical and Tel Aviv.

Diversification Opportunities for Petrochemical and Tel Aviv

0.48

Correlation Coefficient

Petrochemical  Tel Aviv

Very weak diversification

The 3 months correlation between Petrochemical and Tel is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Petrochemical and Tel Aviv 35 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tel Aviv 35 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 Tel Aviv. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tel Aviv 35 has no effect on the direction of Petrochemical i.e., Petrochemical and Tel Aviv go up and down completely randomly.

Pair Corralation between Petrochemical and Tel Aviv

Assuming the 90 days trading horizon Petrochemical is expected to generate 2.82 times more return on investment than Tel Aviv. However, Petrochemical is 2.82 times more volatile than Tel Aviv 35. It trades about 0.11 of its potential returns per unit of risk. Tel Aviv 35 is currently generating about 0.19 per unit of risk. If you would invest  20,080  in Petrochemical on November 28, 2024 and sell it today you would earn a total of  2,670  from holding Petrochemical or generate 13.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.04%
Values	Daily Returns

Petrochemical  vs.  Tel Aviv 35

Pair Trading with Petrochemical and Tel Aviv

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

The idea behind Petrochemical and Tel Aviv 35 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.