Correlation Between Discount Investment and Arad Investment
Can any of the company-specific risk be diversified away by investing in both Discount Investment and Arad Investment 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 Discount Investment and Arad Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Discount Investment Corp and Arad Investment Industrial, you can compare the effects of market volatilities on Discount Investment and Arad Investment 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 Discount Investment with a short position of Arad Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discount Investment and Arad Investment.
Diversification Opportunities for Discount Investment and Arad Investment
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Discount and Arad is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Discount Investment Corp and Arad Investment Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arad Investment Indu and Discount Investment 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 Discount Investment Corp are associated (or correlated) with Arad Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arad Investment Indu has no effect on the direction of Discount Investment i.e., Discount Investment and Arad Investment go up and down completely randomly.
Pair Corralation between Discount Investment and Arad Investment
Assuming the 90 days trading horizon Discount Investment is expected to generate 3.62 times less return on investment than Arad Investment. But when comparing it to its historical volatility, Discount Investment Corp is 1.05 times less risky than Arad Investment. It trades about 0.15 of its potential returns per unit of risk. Arad Investment Industrial is currently generating about 0.51 of returns per unit of risk over similar time horizon. If you would invest 1,007,000 in Arad Investment Industrial on September 2, 2024 and sell it today you would earn a total of 364,000 from holding Arad Investment Industrial or generate 36.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Discount Investment Corp vs. Arad Investment Industrial
Performance |
| Timeline |
| Discount Investment Corp |
| Arad Investment Indu |
Discount Investment and Arad Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discount Investment and Arad Investment
The main advantage of trading using opposite Discount Investment and Arad Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discount Investment position performs unexpectedly, Arad Investment 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 Investment will offset losses from the drop in Arad Investment's long position.| Discount Investment vs. Arad | Discount Investment vs. Alony Hetz Properties | Discount Investment vs. Airport City | Discount Investment vs. Harel Insurance Investments |
| Arad Investment vs. Arad | Arad Investment vs. Alony Hetz Properties | Arad Investment vs. Airport City | Arad Investment vs. Harel Insurance Investments |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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