Correlation Between Bank Leumi and Clal Insurance

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

By analyzing existing cross correlation between Bank Leumi Le Israel and Clal Insurance Enterprises, you can compare the effects of market volatilities on Bank Leumi and Clal 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 Bank Leumi with a short position of Clal Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Leumi and Clal Insurance.

Diversification Opportunities for Bank Leumi and Clal Insurance

0.83

Correlation Coefficient

Bank Leumi  Clal Insurance

Very poor diversification

The 3 months correlation between Bank and Clal is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Bank Leumi Le Israel and Clal Insurance Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clal Insurance Enter and Bank Leumi 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 Bank Leumi Le Israel are associated (or correlated) with Clal Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clal Insurance Enter has no effect on the direction of Bank Leumi i.e., Bank Leumi and Clal Insurance go up and down completely randomly.

Pair Corralation between Bank Leumi and Clal Insurance

Assuming the 90 days trading horizon Bank Leumi Le Israel is expected to under-perform the Clal Insurance. In addition to that, Bank Leumi is 1.33 times more volatile than Clal Insurance Enterprises. It trades about -0.11 of its total potential returns per unit of risk. Clal Insurance Enterprises is currently generating about -0.1 per unit of volatility. If you would invest  646,300  in Clal Insurance Enterprises on February 1, 2024 and sell it today you would lose (19,600) from holding Clal Insurance Enterprises or give up 3.03% of portfolio value over 90 days.

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

Bank Leumi Le Israel  vs.  Clal Insurance Enterprises

Bank Leumi Le

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Bank Leumi Le Israel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Bank Leumi may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Clal Insurance Enter

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Clal Insurance Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Clal Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Leumi and Clal Insurance

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

The idea behind Bank Leumi Le Israel and Clal Insurance Enterprises 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 Transaction History module to view history of all your transactions and understand their impact on performance.