Correlation Between Clal Insurance and Kafrit

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

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

Diversification Opportunities for Clal Insurance and Kafrit

0.8

Correlation Coefficient

Clal Insurance  Kafrit

Very poor diversification

The 3 months correlation between Clal and Kafrit is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Clal Insurance Enterprises and Kafrit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kafrit and Clal Insurance 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 Insurance Enterprises are associated (or correlated) with Kafrit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kafrit has no effect on the direction of Clal Insurance i.e., Clal Insurance and Kafrit go up and down completely randomly.

Pair Corralation between Clal Insurance and Kafrit

Assuming the 90 days trading horizon Clal Insurance Enterprises is expected to generate 1.24 times more return on investment than Kafrit. However, Clal Insurance is 1.24 times more volatile than Kafrit. It trades about 0.35 of its potential returns per unit of risk. Kafrit is currently generating about -0.29 per unit of risk. If you would invest  743,000  in Clal Insurance Enterprises on September 12, 2024 and sell it today you would earn a total of  101,500  from holding Clal Insurance Enterprises or generate 13.66% return on investment over 90 days.

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

Clal Insurance Enterprises  vs.  Kafrit

Clal Insurance Enter

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Clal Insurance Enterprises are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Clal Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Kafrit

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kafrit are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kafrit sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Clal Insurance and Kafrit

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

The idea behind Clal Insurance Enterprises and Kafrit 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.