Correlation Between Elbit Systems and NewMed Energy

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

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

Diversification Opportunities for Elbit Systems and NewMed Energy

0.96

Correlation Coefficient

Elbit Systems  NewMed Energy

Almost no diversification

The 3 months correlation between Elbit and NewMed is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Elbit Systems and NewMed Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewMed Energy 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 NewMed Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewMed Energy has no effect on the direction of Elbit Systems i.e., Elbit Systems and NewMed Energy go up and down completely randomly.

Pair Corralation between Elbit Systems and NewMed Energy

Assuming the 90 days trading horizon Elbit Systems is expected to generate 1.18 times more return on investment than NewMed Energy. However, Elbit Systems is 1.18 times more volatile than NewMed Energy . It trades about 0.3 of its potential returns per unit of risk. NewMed Energy is currently generating about 0.25 per unit of risk. If you would invest  7,295,430  in Elbit Systems on September 25, 2024 and sell it today you would earn a total of  2,199,569  from holding Elbit Systems or generate 30.15% 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.  NewMed Energy

Elbit Systems

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Elbit Systems are ranked lower than 23 (%) 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.

NewMed Energy

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NewMed Energy are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NewMed Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elbit Systems and NewMed Energy

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

The idea behind Elbit Systems and NewMed Energy 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.