Correlation Between Ayalon Holdings and Clal Insurance
Can any of the company-specific risk be diversified away by investing in both Ayalon Holdings and Clal Insurance 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 Ayalon Holdings and Clal Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ayalon Holdings and Clal Insurance Enterprises, you can compare the effects of market volatilities on Ayalon Holdings and Clal Insurance 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 Ayalon Holdings with a short position of Clal Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ayalon Holdings and Clal Insurance.
Diversification Opportunities for Ayalon Holdings and Clal Insurance
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ayalon and Clal is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Ayalon Holdings and Clal Insurance Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clal Insurance Enter and Ayalon Holdings 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 Ayalon Holdings are associated (or correlated) with Clal Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clal Insurance Enter has no effect on the direction of Ayalon Holdings i.e., Ayalon Holdings and Clal Insurance go up and down completely randomly.
Pair Corralation between Ayalon Holdings and Clal Insurance
Assuming the 90 days trading horizon Ayalon Holdings is expected to generate 1.32 times more return on investment than Clal Insurance. However, Ayalon Holdings is 1.32 times more volatile than Clal Insurance Enterprises. It trades about -0.21 of its potential returns per unit of risk. Clal Insurance Enterprises is currently generating about -0.31 per unit of risk. If you would invest 200,300 in Ayalon Holdings on January 25, 2024 and sell it today you would lose (20,300) from holding Ayalon Holdings or give up 10.13% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ayalon Holdings vs. Clal Insurance Enterprises
Performance |
| Timeline |
| Ayalon Holdings |
| Clal Insurance Enter |
Ayalon Holdings and Clal Insurance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ayalon Holdings and Clal Insurance
The main advantage of trading using opposite Ayalon Holdings and Clal Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ayalon Holdings position performs unexpectedly, Clal Insurance 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 Clal Insurance will offset losses from the drop in Clal Insurance's long position.The idea behind Ayalon Holdings and Clal Insurance Enterprises pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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