Correlation Between SPBVL Peru and Tel Aviv

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

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

Diversification Opportunities for SPBVL Peru and Tel Aviv

0.57

Correlation Coefficient

SPBVL Peru  Tel Aviv

Very weak diversification

The 3 months correlation between SPBVL and Tel is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding SPBVL Peru General 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 SPBVL Peru 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 SPBVL Peru General 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 SPBVL Peru i.e., SPBVL Peru and Tel Aviv go up and down completely randomly.

Pair Corralation between SPBVL Peru and Tel Aviv

Assuming the 90 days trading horizon SPBVL Peru General is expected to under-perform the Tel Aviv. But the index apears to be less risky and, when comparing its historical volatility, SPBVL Peru General is 1.29 times less risky than Tel Aviv. The index trades about -0.01 of its potential returns per unit of risk. The Tel Aviv 35 is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  201,941  in Tel Aviv 35 on September 1, 2024 and sell it today you would earn a total of  24,108  from holding Tel Aviv 35 or generate 11.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	75.59%
Values	Daily Returns

SPBVL Peru General  vs.  Tel Aviv 35

Pair Trading with SPBVL Peru and Tel Aviv

The main advantage of trading using opposite SPBVL Peru and Tel Aviv positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPBVL Peru 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 SPBVL Peru General 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.