Correlation Between ICL Israel and Arad

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

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

Diversification Opportunities for ICL Israel and Arad

0.58

Correlation Coefficient

ICL Israel  Arad

Very weak diversification

The 3 months correlation between ICL and Arad is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding ICL Israel Chemicals and Arad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arad and ICL Israel 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 ICL Israel Chemicals are associated (or correlated) with Arad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arad has no effect on the direction of ICL Israel i.e., ICL Israel and Arad go up and down completely randomly.

Pair Corralation between ICL Israel and Arad

Assuming the 90 days trading horizon ICL Israel Chemicals is expected to generate 1.85 times more return on investment than Arad. However, ICL Israel is 1.85 times more volatile than Arad. It trades about 0.18 of its potential returns per unit of risk. Arad is currently generating about 0.12 per unit of risk. If you would invest  148,553  in ICL Israel Chemicals on September 15, 2024 and sell it today you would earn a total of  34,847  from holding ICL Israel Chemicals or generate 23.46% return on investment over 90 days.

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

ICL Israel Chemicals  vs.  Arad

ICL Israel Chemicals

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ICL Israel Chemicals are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, ICL Israel sustained solid returns over the last few months and may actually be approaching a breakup point.

Arad

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arad are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Arad may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ICL Israel and Arad

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

The idea behind ICL Israel Chemicals and Arad 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.