Correlation Between Elron Electronic and Migdal Insurance

Can any of the company-specific risk be diversified away by investing in both Elron Electronic 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 Elron Electronic and Migdal Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Elron Electronic Industries and Migdal Insurance, you can compare the effects of market volatilities on Elron Electronic 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 Elron Electronic with a short position of Migdal Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elron Electronic and Migdal Insurance.

Diversification Opportunities for Elron Electronic and Migdal Insurance

0.23

Correlation Coefficient

Elron Electronic  Migdal Insurance

Modest diversification

The 3 months correlation between Elron and Migdal is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Elron Electronic Industries and Migdal Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Migdal Insurance and Elron Electronic 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 Elron Electronic Industries 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 Elron Electronic i.e., Elron Electronic and Migdal Insurance go up and down completely randomly.

Pair Corralation between Elron Electronic and Migdal Insurance

Assuming the 90 days trading horizon Elron Electronic Industries is expected to generate 0.78 times more return on investment than Migdal Insurance. However, Elron Electronic Industries is 1.28 times less risky than Migdal Insurance. It trades about -0.22 of its potential returns per unit of risk. Migdal Insurance is currently generating about -0.45 per unit of risk. If you would invest  54,710  in Elron Electronic Industries on February 7, 2024 and sell it today you would lose (2,690) from holding Elron Electronic Industries or give up 4.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.33%
Values	Daily Returns

Elron Electronic Industries  vs.  Migdal Insurance

Elron Electronic Ind

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elron Electronic Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Elron Electronic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Migdal Insurance

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Migdal Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Migdal Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elron Electronic and Migdal Insurance

The main advantage of trading using opposite Elron Electronic and Migdal Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Elron Electronic 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 Elron Electronic Industries 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.

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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.