Correlation Between Dow Jones and Israel Discount
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Israel Discount 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 Dow Jones and Israel Discount into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Israel Discount Bank, you can compare the effects of market volatilities on Dow Jones and Israel Discount 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 Dow Jones with a short position of Israel Discount. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Israel Discount.
Diversification Opportunities for Dow Jones and Israel Discount
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Israel is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Israel Discount Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Israel Discount Bank and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with Israel Discount. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Israel Discount Bank has no effect on the direction of Dow Jones i.e., Dow Jones and Israel Discount go up and down completely randomly.
Pair Corralation between Dow Jones and Israel Discount
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.55 times less return on investment than Israel Discount. But when comparing it to its historical volatility, Dow Jones Industrial is 2.71 times less risky than Israel Discount. It trades about 0.07 of its potential returns per unit of risk. Israel Discount Bank is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 186,080 in Israel Discount Bank on August 24, 2024 and sell it today you would earn a total of 53,320 from holding Israel Discount Bank or generate 28.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 78.02% |
| Values | Daily Returns |
Dow Jones Industrial vs. Israel Discount Bank
Performance |
| Timeline |
Dow Jones and Israel Discount Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Israel Discount Bank
Pair trading matchups for Israel Discount
Pair Trading with Dow Jones and Israel Discount
The main advantage of trading using opposite Dow Jones and Israel Discount positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Israel Discount 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 Israel Discount will offset losses from the drop in Israel Discount's long position.| Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. Perseus Mining Limited | Dow Jones vs. Titan Machinery | Dow Jones vs. Simon Property Group |
| Israel Discount vs. Bank Leumi Le Israel | Israel Discount vs. Bank Hapoalim | Israel Discount vs. Mizrahi Tefahot | Israel Discount vs. Bezeq Israeli Telecommunication |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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