Can any of the company-specific risk be diversified away by investing in both ICL Israel and YH Dimri 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 ICL Israel and YH Dimri into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ICL Israel Chemicals and YH Dimri Construction, you can compare the effects of market volatilities on ICL Israel and YH Dimri 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 ICL Israel with a short position of YH Dimri. Check out your portfolio center. Please also check ongoing floating volatility patterns of ICL Israel and YH Dimri.
Diversification Opportunities for ICL Israel and YH Dimri
The 3 months correlation between ICL and DIMRI is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding ICL Israel Chemicals and YH Dimri Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YH Dimri Construction and ICL Israel 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 ICL Israel Chemicals are associated (or correlated) with YH Dimri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YH Dimri Construction has no effect on the direction of ICL Israel i.e., ICL Israel and YH Dimri go up and down completely randomly.
Assuming the 90 days trading horizon ICL Israel Chemicals is expected to under-perform the YH Dimri. But the stock apears to be less risky and, when comparing its historical volatility, ICL Israel Chemicals is 1.18 times less risky than YH Dimri. The stock trades about -0.02 of its potential returns per unit of risk. The YH Dimri Construction is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 2,377,996 in YH Dimri Construction on March 6, 2024 and sell it today you would earn a total of 434,004 from holding YH Dimri Construction or generate 18.25% return on investment over 90 days.
Over the last 90 days ICL Israel Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.
Compared to the overall equity markets, risk-adjusted returns on investments in YH Dimri Construction are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward indicators, YH Dimri is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.