Can any of the company-specific risk be diversified away by investing in both Clal Biotechnology and Danel 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 Clal Biotechnology and Danel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Clal Biotechnology Industries and Danel, you can compare the effects of market volatilities on Clal Biotechnology and Danel 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 Clal Biotechnology with a short position of Danel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Clal Biotechnology and Danel.
Diversification Opportunities for Clal Biotechnology and Danel
The 3 months correlation between Clal and Danel is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Clal Biotechnology Industries and Danel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danel and Clal Biotechnology 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 Clal Biotechnology Industries are associated (or correlated) with Danel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danel has no effect on the direction of Clal Biotechnology i.e., Clal Biotechnology and Danel go up and down completely randomly.
Pair Corralation between Clal Biotechnology and Danel
Assuming the 90 days trading horizon Clal Biotechnology Industries is expected to under-perform the Danel. In addition to that, Clal Biotechnology is 1.11 times more volatile than Danel. It trades about -0.03 of its total potential returns per unit of risk. Danel is currently generating about 0.01 per unit of volatility. If you would invest 3,829,806 in Danel on March 6, 2024 and sell it today you would lose (330,806) from holding Danel or give up 8.64% of portfolio value over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Clal Biotechnology Industries are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Clal Biotechnology sustained solid returns over the last few months and may actually be approaching a breakup point.
Over the last 90 days Danel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Danel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.