Can any of the company-specific risk be diversified away by investing in both Tower Semiconductor and Migdal 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 Tower Semiconductor and Migdal Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tower Semiconductor and Migdal Insurance, you can compare the effects of market volatilities on Tower Semiconductor and Migdal 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 Tower Semiconductor with a short position of Migdal Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tower Semiconductor and Migdal Insurance.
Diversification Opportunities for Tower Semiconductor and Migdal Insurance
The 3 months correlation between Tower and Migdal is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Tower Semiconductor and Migdal Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Migdal Insurance and Tower Semiconductor 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 Tower Semiconductor are associated (or correlated) with Migdal Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Migdal Insurance has no effect on the direction of Tower Semiconductor i.e., Tower Semiconductor and Migdal Insurance go up and down completely randomly.
Pair Corralation between Tower Semiconductor and Migdal Insurance
Assuming the 90 days trading horizon Tower Semiconductor is expected to under-perform the Migdal Insurance. In addition to that, Tower Semiconductor is 1.13 times more volatile than Migdal Insurance. It trades about -0.64 of its total potential returns per unit of risk. Migdal Insurance is currently generating about 0.2 per unit of volatility. If you would invest 44,570 in Migdal Insurance on July 6, 2023 and sell it today you would earn a total of 2,430 from holding Migdal Insurance or generate 5.45% return on investment over 90 days.
Over the last 90 days Tower Semiconductor 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 November 2023. The current disturbance may also be a sign of long term up-swing for the company investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Migdal Insurance are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Migdal Insurance may actually be approaching a critical reversion point that can send shares even higher in November 2023.
Tower Semiconductor and Migdal Insurance Volatility Contrast
Predicted Return Density
Pair Trading with Tower Semiconductor and Migdal Insurance
The main advantage of trading using opposite Tower Semiconductor and Migdal Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tower Semiconductor position performs unexpectedly, Migdal 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 Migdal Insurance will offset losses from the drop in Migdal Insurance's long position.
The idea behind Tower Semiconductor and Migdal Insurance 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
Screen CEOs from public companies around the world
Macroaxis helps investors of all levels and skills to maximize the upside of all their holdings and minimize the risk
associated with market volatility, economic swings, and company-specific events. View terms and conditions