Can any of the company-specific risk be diversified away by investing in both Clal Insurance and Hamat 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 Insurance and Hamat into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Clal Insurance Enterprises and Hamat Group, you can compare the effects of market volatilities on Clal Insurance and Hamat 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 Insurance with a short position of Hamat. Check out your portfolio center. Please also check ongoing floating volatility patterns of Clal Insurance and Hamat.
Diversification Opportunities for Clal Insurance and Hamat
The 3 months correlation between Clal and Hamat is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Clal Insurance Enterprises and Hamat Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hamat Group and Clal Insurance 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 Insurance Enterprises are associated (or correlated) with Hamat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hamat Group has no effect on the direction of Clal Insurance i.e., Clal Insurance and Hamat go up and down completely randomly.
Assuming the 90 days trading horizon Clal Insurance Enterprises is expected to generate 0.85 times more return on investment than Hamat. However, Clal Insurance Enterprises is 1.17 times less risky than Hamat. It trades about -0.08 of its potential returns per unit of risk. Hamat Group is currently generating about -0.38 per unit of risk. If you would invest 620,700 in Clal Insurance Enterprises on March 6, 2024 and sell it today you would lose (16,200) from holding Clal Insurance Enterprises or give up 2.61% of portfolio value over 90 days.
Over the last 90 days Clal Insurance Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
Over the last 90 days Hamat Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in July 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.