Correlation Between Yara International and ICL Israel

Can any of the company-specific risk be diversified away by investing in both Yara International and ICL Israel 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 Yara International and ICL Israel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Yara International ASA and ICL Israel Chemicals, you can compare the effects of market volatilities on Yara International and ICL Israel 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 Yara International with a short position of ICL Israel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yara International and ICL Israel.

Diversification Opportunities for Yara International and ICL Israel

-0.36

Correlation Coefficient

Yara International  ICL Israel

Very good diversification

The 3 months correlation between Yara and ICL is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Yara International ASA and ICL Israel Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICL Israel Chemicals and Yara International 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 Yara International ASA are associated (or correlated) with ICL Israel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICL Israel Chemicals has no effect on the direction of Yara International i.e., Yara International and ICL Israel go up and down completely randomly.

Pair Corralation between Yara International and ICL Israel

Assuming the 90 days horizon Yara International ASA is expected to generate 0.81 times more return on investment than ICL Israel. However, Yara International ASA is 1.23 times less risky than ICL Israel. It trades about -0.22 of its potential returns per unit of risk. ICL Israel Chemicals is currently generating about -0.29 per unit of risk. If you would invest  1,592  in Yara International ASA on January 20, 2024 and sell it today you would lose (104.00) from holding Yara International ASA or give up 6.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	91.3%
Values	Daily Returns

Yara International ASA  vs.  ICL Israel Chemicals

Yara International ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yara International ASA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

ICL Israel Chemicals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ICL Israel Chemicals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, ICL Israel is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Yara International and ICL Israel

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

The idea behind Yara International ASA and ICL Israel Chemicals 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.