Correlation Between Clal Biotechnology and Arad

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

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

Diversification Opportunities for Clal Biotechnology and Arad

-0.66

Correlation Coefficient

Clal Biotechnology  Arad

Excellent diversification

The 3 months correlation between Clal and Arad is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Clal Biotechnology Industries and Arad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arad and Clal Biotechnology 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 Clal Biotechnology Industries are associated (or correlated) with Arad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arad has no effect on the direction of Clal Biotechnology i.e., Clal Biotechnology and Arad go up and down completely randomly.

Pair Corralation between Clal Biotechnology and Arad

Assuming the 90 days trading horizon Clal Biotechnology Industries is expected to under-perform the Arad. In addition to that, Clal Biotechnology is 1.17 times more volatile than Arad. It trades about -0.04 of its total potential returns per unit of risk. Arad is currently generating about -0.02 per unit of volatility. If you would invest  516,200  in Arad on September 12, 2024 and sell it today you would lose (4,400) from holding Arad or give up 0.85% of portfolio value over 90 days.

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

Clal Biotechnology Industries  vs.  Arad

Clal Biotechnology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clal Biotechnology Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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.

Arad

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arad are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Arad may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Clal Biotechnology and Arad

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

The idea behind Clal Biotechnology Industries and Arad 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.