Correlation Between El Al and Arad
Can any of the company-specific risk be diversified away by investing in both El Al 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 El Al and Arad into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between El Al Israel and Arad, you can compare the effects of market volatilities on El Al 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 El Al with a short position of Arad. Check out your portfolio center. Please also check ongoing floating volatility patterns of El Al and Arad.
Diversification Opportunities for El Al and Arad
Very poor diversification
The 3 months correlation between ELAL and Arad is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding El Al Israel and Arad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arad and El Al 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 El Al Israel 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 El Al i.e., El Al and Arad go up and down completely randomly.
Pair Corralation between El Al and Arad
Assuming the 90 days trading horizon El Al Israel is expected to under-perform the Arad. In addition to that, El Al is 2.17 times more volatile than Arad. It trades about -0.16 of its total potential returns per unit of risk. Arad is currently generating about -0.09 per unit of volatility. If you would invest 512,300 in Arad on September 3, 2024 and sell it today you would lose (15,800) from holding Arad or give up 3.08% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
El Al Israel vs. Arad
Performance |
| Timeline |
| El Al Israel |
| Arad |
El Al and Arad Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with El Al and Arad
The main advantage of trading using opposite El Al and Arad positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if El Al 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.| El Al vs. Delek Group | El Al vs. Teva Pharmaceutical Industries | El Al vs. Fattal 1998 Holdings | El Al vs. Bank Leumi Le Israel |
| 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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