Correlation Between RSL Electronics and Arad Investment

Can any of the company-specific risk be diversified away by investing in both RSL Electronics and Arad Investment 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 RSL Electronics and Arad Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between RSL Electronics and Arad Investment Industrial, you can compare the effects of market volatilities on RSL Electronics and Arad Investment 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 RSL Electronics with a short position of Arad Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of RSL Electronics and Arad Investment.

Diversification Opportunities for RSL Electronics and Arad Investment

0.66

Correlation Coefficient

RSL Electronics  Arad Investment

Poor diversification

The 3 months correlation between RSL and Arad is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding RSL Electronics and Arad Investment Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arad Investment Indu and RSL Electronics 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 RSL Electronics are associated (or correlated) with Arad Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arad Investment Indu has no effect on the direction of RSL Electronics i.e., RSL Electronics and Arad Investment go up and down completely randomly.

Pair Corralation between RSL Electronics and Arad Investment

Assuming the 90 days trading horizon RSL Electronics is expected to under-perform the Arad Investment. In addition to that, RSL Electronics is 1.38 times more volatile than Arad Investment Industrial. It trades about -0.04 of its total potential returns per unit of risk. Arad Investment Industrial is currently generating about 0.2 per unit of volatility. If you would invest  821,900  in Arad Investment Industrial on March 1, 2024 and sell it today you would earn a total of  191,100  from holding Arad Investment Industrial or generate 23.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

RSL Electronics  vs.  Arad Investment Industrial

RSL Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RSL Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Arad Investment Indu

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arad Investment Industrial are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Arad Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RSL Electronics and Arad Investment

The main advantage of trading using opposite RSL Electronics and Arad Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RSL Electronics position performs unexpectedly, Arad Investment 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 Arad Investment will offset losses from the drop in Arad Investment's long position.

The idea behind RSL Electronics and Arad Investment Industrial 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.

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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.