Correlation Between Israel Discount and PSB Holdings

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

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

Diversification Opportunities for Israel Discount and PSB Holdings

0.45

Correlation Coefficient

Israel Discount  PSB Holdings

Very weak diversification

The 3 months correlation between Israel and PSB is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Israel Discount Bank and PSB Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PSB Holdings and Israel Discount 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 Discount Bank are associated (or correlated) with PSB Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PSB Holdings has no effect on the direction of Israel Discount i.e., Israel Discount and PSB Holdings go up and down completely randomly.

Pair Corralation between Israel Discount and PSB Holdings

Assuming the 90 days horizon Israel Discount Bank is expected to generate 2.2 times more return on investment than PSB Holdings. However, Israel Discount is 2.2 times more volatile than PSB Holdings. It trades about 0.29 of its potential returns per unit of risk. PSB Holdings is currently generating about 0.13 per unit of risk. If you would invest  5,200  in Israel Discount Bank on July 22, 2024 and sell it today you would earn a total of  780.00  from holding Israel Discount Bank or generate 15.0% return on investment over 90 days.

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

Israel Discount Bank  vs.  PSB Holdings

Israel Discount Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Israel Discount Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Israel Discount is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

PSB Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PSB Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, PSB Holdings may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Pair Trading with Israel Discount and PSB Holdings

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

The idea behind Israel Discount Bank and PSB Holdings 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.