Correlation Between Israel China and Tel Aviv

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

By analyzing existing cross correlation between Israel China Biotechnology and Tel Aviv Stock, you can compare the effects of market volatilities on Israel China and Tel Aviv 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 Israel China with a short position of Tel Aviv. Check out your portfolio center. Please also check ongoing floating volatility patterns of Israel China and Tel Aviv.

Diversification Opportunities for Israel China and Tel Aviv

0.77

Correlation Coefficient

Israel China  Tel Aviv

Poor diversification

The 3 months correlation between Israel and Tel is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Israel China Biotechnology and Tel Aviv Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tel Aviv Stock and Israel China 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 Israel China Biotechnology are associated (or correlated) with Tel Aviv. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tel Aviv Stock has no effect on the direction of Israel China i.e., Israel China and Tel Aviv go up and down completely randomly.

Pair Corralation between Israel China and Tel Aviv

Assuming the 90 days trading horizon Israel China Biotechnology is expected to under-perform the Tel Aviv. In addition to that, Israel China is 5.64 times more volatile than Tel Aviv Stock. It trades about -0.19 of its total potential returns per unit of risk. Tel Aviv Stock is currently generating about -0.31 per unit of volatility. If you would invest  256,500  in Tel Aviv Stock on February 4, 2024 and sell it today you would lose (12,500) from holding Tel Aviv Stock or give up 4.87% of portfolio value over 90 days.

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

Israel China Biotechnology  vs.  Tel Aviv Stock

Israel China Biotech

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Israel China Biotechnology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Israel China sustained solid returns over the last few months and may actually be approaching a breakup point.

Tel Aviv Stock

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tel Aviv Stock are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tel Aviv may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Israel China and Tel Aviv

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

The idea behind Israel China Biotechnology and Tel Aviv Stock 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.