Correlation Between Isramco Negev and Petrochemical

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

By analyzing existing cross correlation between Isramco Negev 2 and Petrochemical, you can compare the effects of market volatilities on Isramco Negev and Petrochemical 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 Isramco Negev with a short position of Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Isramco Negev and Petrochemical.

Diversification Opportunities for Isramco Negev and Petrochemical

0.36

Correlation Coefficient

Isramco Negev  Petrochemical

Weak diversification

The 3 months correlation between Isramco and Petrochemical is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Isramco Negev 2 and Petrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrochemical and Isramco Negev 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 Isramco Negev 2 are associated (or correlated) with Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrochemical has no effect on the direction of Isramco Negev i.e., Isramco Negev and Petrochemical go up and down completely randomly.

Pair Corralation between Isramco Negev and Petrochemical

Assuming the 90 days trading horizon Isramco Negev 2 is expected to generate 0.57 times more return on investment than Petrochemical. However, Isramco Negev 2 is 1.76 times less risky than Petrochemical. It trades about 0.24 of its potential returns per unit of risk. Petrochemical is currently generating about 0.01 per unit of risk. If you would invest  15,879  in Isramco Negev 2 on September 26, 2024 and sell it today you would earn a total of  2,741  from holding Isramco Negev 2 or generate 17.26% return on investment over 90 days.

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

Isramco Negev 2  vs.  Petrochemical

Isramco Negev 2

Risk-Adjusted Performance

18 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Isramco Negev 2 are ranked lower than 18 (%) 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.

Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petrochemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Petrochemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Isramco Negev and Petrochemical

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

The idea behind Isramco Negev 2 and Petrochemical 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.