Correlation Between Big Tech and Arad
Can any of the company-specific risk be diversified away by investing in both Big Tech and Arad 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 Big Tech and Arad into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Big Tech 50 and Arad, you can compare the effects of market volatilities on Big Tech and Arad 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 Big Tech with a short position of Arad. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big Tech and Arad.
Diversification Opportunities for Big Tech and Arad
Pay attention - limited upside
The 3 months correlation between Big and Arad is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Big Tech 50 and Arad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arad and Big Tech 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 Big Tech 50 are associated (or correlated) with Arad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arad has no effect on the direction of Big Tech i.e., Big Tech and Arad go up and down completely randomly.
Pair Corralation between Big Tech and Arad
Assuming the 90 days trading horizon Big Tech 50 is expected to under-perform the Arad. In addition to that, Big Tech is 1.5 times more volatile than Arad. It trades about -0.04 of its total potential returns per unit of risk. Arad is currently generating about -0.01 per unit of volatility. If you would invest 561,002 in Arad on August 31, 2024 and sell it today you would lose (64,502) from holding Arad or give up 11.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Big Tech 50 vs. Arad
Performance |
| Timeline |
| Big Tech 50 |
| Arad |
Big Tech and Arad Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Big Tech and Arad
The main advantage of trading using opposite Big Tech and Arad positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big Tech position performs unexpectedly, Arad 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 Arad will offset losses from the drop in Arad's long position.| Big Tech vs. Generation Capital | Big Tech vs. Meitav Dash Investments | Big Tech vs. IBI Inv House | Big Tech vs. Mivtach Shamir |
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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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