Correlation Between Direct Capital and Clal Biotechnology

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

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

Diversification Opportunities for Direct Capital and Clal Biotechnology

0.73

Correlation Coefficient

Direct Capital  Clal Biotechnology

Poor diversification

The 3 months correlation between Direct and Clal is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Direct Capital Investments and Clal Biotechnology Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clal Biotechnology and Direct Capital 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 Direct Capital Investments are associated (or correlated) with Clal Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clal Biotechnology has no effect on the direction of Direct Capital i.e., Direct Capital and Clal Biotechnology go up and down completely randomly.

Pair Corralation between Direct Capital and Clal Biotechnology

Assuming the 90 days trading horizon Direct Capital Investments is expected to generate 3.76 times more return on investment than Clal Biotechnology. However, Direct Capital is 3.76 times more volatile than Clal Biotechnology Industries. It trades about 0.23 of its potential returns per unit of risk. Clal Biotechnology Industries is currently generating about -0.04 per unit of risk. If you would invest  79,730  in Direct Capital Investments on September 12, 2024 and sell it today you would earn a total of  27,070  from holding Direct Capital Investments or generate 33.95% return on investment over 90 days.

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

Direct Capital Investments  vs.  Clal Biotechnology Industries

Direct Capital Inves

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direct Capital Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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.

Pair Trading with Direct Capital and Clal Biotechnology

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

The idea behind Direct Capital Investments and Clal Biotechnology Industries 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.