Correlation Between Arad and Elspec
Can any of the company-specific risk be diversified away by investing in both Arad and Elspec 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 Arad and Elspec into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Arad and Elspec, you can compare the effects of market volatilities on Arad and Elspec 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 Arad with a short position of Elspec. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arad and Elspec.
Diversification Opportunities for Arad and Elspec
Almost no diversification
The 3 months correlation between Arad and Elspec is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Arad and Elspec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elspec and Arad 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 Arad are associated (or correlated) with Elspec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elspec has no effect on the direction of Arad i.e., Arad and Elspec go up and down completely randomly.
Pair Corralation between Arad and Elspec
Assuming the 90 days trading horizon Arad is expected to generate 6.31 times less return on investment than Elspec. But when comparing it to its historical volatility, Arad is 1.38 times less risky than Elspec. It trades about 0.02 of its potential returns per unit of risk. Elspec is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 30,540 in Elspec on September 3, 2024 and sell it today you would earn a total of 47,070 from holding Elspec or generate 154.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Arad vs. Elspec
Performance |
| Timeline |
| Arad |
| Elspec |
Arad and Elspec Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Arad and Elspec
The main advantage of trading using opposite Arad and Elspec positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arad position performs unexpectedly, Elspec 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 Elspec will offset losses from the drop in Elspec's long position.| Arad vs. Isras Investment | Arad vs. Oron Group Investments | Arad vs. Retailors | Arad vs. Clal Biotechnology Industries |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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