Correlation Between Elbit Systems and Ayalon Holdings

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

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

Diversification Opportunities for Elbit Systems and Ayalon Holdings

0.91

Correlation Coefficient

Elbit Systems  Ayalon Holdings

Almost no diversification

The 3 months correlation between Elbit and Ayalon is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Elbit Systems and Ayalon Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ayalon Holdings and Elbit Systems 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 Elbit Systems are associated (or correlated) with Ayalon Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ayalon Holdings has no effect on the direction of Elbit Systems i.e., Elbit Systems and Ayalon Holdings go up and down completely randomly.

Pair Corralation between Elbit Systems and Ayalon Holdings

Assuming the 90 days trading horizon Elbit Systems is expected to generate 2.51 times less return on investment than Ayalon Holdings. But when comparing it to its historical volatility, Elbit Systems is 1.21 times less risky than Ayalon Holdings. It trades about 0.21 of its potential returns per unit of risk. Ayalon Holdings is currently generating about 0.43 of returns per unit of risk over similar time horizon. If you would invest  206,400  in Ayalon Holdings on September 5, 2024 and sell it today you would earn a total of  116,200  from holding Ayalon Holdings or generate 56.3% return on investment over 90 days.

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

Elbit Systems  vs.  Ayalon Holdings

Elbit Systems

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Elbit Systems are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Elbit Systems sustained solid returns over the last few months and may actually be approaching a breakup point.

Ayalon Holdings

Risk-Adjusted Performance

33 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Ayalon Holdings are ranked lower than 33 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ayalon Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elbit Systems and Ayalon Holdings

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

The idea behind Elbit Systems and Ayalon 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.