Correlation Between Brand and El Al
Can any of the company-specific risk be diversified away by investing in both Brand and El Al 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 Brand and El Al into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brand Group and El Al Israel, you can compare the effects of market volatilities on Brand and El Al 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 Brand with a short position of El Al. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brand and El Al.
Diversification Opportunities for Brand and El Al
Very weak diversification
The 3 months correlation between Brand and ELAL is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Brand Group and El Al Israel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on El Al Israel and Brand 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 Brand Group are associated (or correlated) with El Al. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of El Al Israel has no effect on the direction of Brand i.e., Brand and El Al go up and down completely randomly.
Pair Corralation between Brand and El Al
Assuming the 90 days trading horizon Brand Group is expected to under-perform the El Al. But the stock apears to be less risky and, when comparing its historical volatility, Brand Group is 1.46 times less risky than El Al. The stock trades about -0.53 of its potential returns per unit of risk. The El Al Israel is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 49,350 in El Al Israel on January 26, 2024 and sell it today you would earn a total of 1,550 from holding El Al Israel or generate 3.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Brand Group vs. El Al Israel
Performance |
| Timeline |
| Brand Group |
| El Al Israel |
Brand and El Al Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Brand and El Al
The main advantage of trading using opposite Brand and El Al positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brand position performs unexpectedly, El Al 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 El Al will offset losses from the drop in El Al's long position.The idea behind Brand Group and El Al Israel 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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