Correlation Between ICL Israel and CVR Partners

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

Diversification Opportunities for ICL Israel and CVR Partners

0.42

Correlation Coefficient

ICL Israel  CVR Partners

Very weak diversification

The 3 months correlation between ICL and CVR is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding ICL Israel Chemicals and CVR Partners LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVR Partners LP 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 CVR Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVR Partners LP has no effect on the direction of ICL Israel i.e., ICL Israel and CVR Partners go up and down completely randomly.

Pair Corralation between ICL Israel and CVR Partners

Considering the 90-day investment horizon ICL Israel is expected to generate 2.73 times less return on investment than CVR Partners. In addition to that, ICL Israel is 1.08 times more volatile than CVR Partners LP. It trades about 0.05 of its total potential returns per unit of risk. CVR Partners LP is currently generating about 0.15 per unit of volatility. If you would invest  6,734  in CVR Partners LP on September 3, 2024 and sell it today you would earn a total of  1,426  from holding CVR Partners LP or generate 21.18% 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.  CVR Partners LP

ICL Israel Chemicals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ICL Israel Chemicals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental indicators, ICL Israel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CVR Partners LP

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CVR Partners LP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, CVR Partners displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ICL Israel and CVR Partners

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

The idea behind ICL Israel Chemicals and CVR Partners LP 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.