Correlation Between ICL Israel and Isramco Negev

Can any of the company-specific risk be diversified away by investing in both ICL Israel and Isramco Negev 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 Isramco Negev 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 Isramco Negev 2, you can compare the effects of market volatilities on ICL Israel and Isramco Negev 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 Isramco Negev. Check out your portfolio center. Please also check ongoing floating volatility patterns of ICL Israel and Isramco Negev.

Diversification Opportunities for ICL Israel and Isramco Negev

0.81

Correlation Coefficient

ICL Israel  Isramco Negev

Very poor diversification

The 3 months correlation between ICL and Isramco is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding ICL Israel Chemicals and Isramco Negev 2 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Isramco Negev 2 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 Isramco Negev. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Isramco Negev 2 has no effect on the direction of ICL Israel i.e., ICL Israel and Isramco Negev go up and down completely randomly.

Pair Corralation between ICL Israel and Isramco Negev

Assuming the 90 days trading horizon ICL Israel Chemicals is expected to generate 1.7 times more return on investment than Isramco Negev. However, ICL Israel is 1.7 times more volatile than Isramco Negev 2. It trades about 0.13 of its potential returns per unit of risk. Isramco Negev 2 is currently generating about 0.21 per unit of risk. If you would invest  158,324  in ICL Israel Chemicals on September 27, 2024 and sell it today you would earn a total of  22,776  from holding ICL Israel Chemicals or generate 14.39% return on investment over 90 days.

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

ICL Israel Chemicals  vs.  Isramco Negev 2

ICL Israel Chemicals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ICL Israel Chemicals are ranked lower than 9 (%) 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.

Isramco Negev 2

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Isramco Negev 2 are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Isramco Negev sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ICL Israel and Isramco Negev

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

The idea behind ICL Israel Chemicals and Isramco Negev 2 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.