Correlation Between Eltek and Benchmark Electronics

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

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

Diversification Opportunities for Eltek and Benchmark Electronics

0.35

Correlation Coefficient

Eltek  Benchmark Electronics

Weak diversification

The 3 months correlation between Eltek and Benchmark is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Eltek and Benchmark Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Benchmark Electronics and Eltek 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 Eltek are associated (or correlated) with Benchmark Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Benchmark Electronics has no effect on the direction of Eltek i.e., Eltek and Benchmark Electronics go up and down completely randomly.

Pair Corralation between Eltek and Benchmark Electronics

Given the investment horizon of 90 days Eltek is expected to generate 3.77 times less return on investment than Benchmark Electronics. But when comparing it to its historical volatility, Eltek is 1.25 times less risky than Benchmark Electronics. It trades about 0.04 of its potential returns per unit of risk. Benchmark Electronics is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,063  in Benchmark Electronics on August 31, 2024 and sell it today you would earn a total of  742.00  from holding Benchmark Electronics or generate 18.26% return on investment over 90 days.

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

Eltek  vs.  Benchmark Electronics

Eltek

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eltek are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Eltek is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Benchmark Electronics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Benchmark Electronics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical indicators, Benchmark Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eltek and Benchmark Electronics

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

The idea behind Eltek and Benchmark Electronics 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.