Correlation Between Bank Leumi and Arad Investment

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

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

Diversification Opportunities for Bank Leumi and Arad Investment

0.92

Correlation Coefficient

Bank Leumi  Arad Investment

Almost no diversification

The 3 months correlation between Bank and Arad is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Bank Leumi Le Israel and Arad Investment Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arad Investment Indu and Bank Leumi 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 Bank Leumi Le Israel are associated (or correlated) with Arad Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arad Investment Indu has no effect on the direction of Bank Leumi i.e., Bank Leumi and Arad Investment go up and down completely randomly.

Pair Corralation between Bank Leumi and Arad Investment

Assuming the 90 days trading horizon Bank Leumi is expected to generate 2.0 times less return on investment than Arad Investment. But when comparing it to its historical volatility, Bank Leumi Le Israel is 1.92 times less risky than Arad Investment. It trades about 0.23 of its potential returns per unit of risk. Arad Investment Industrial is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  844,000  in Arad Investment Industrial on September 15, 2024 and sell it today you would earn a total of  786,000  from holding Arad Investment Industrial or generate 93.13% return on investment over 90 days.

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

Bank Leumi Le Israel  vs.  Arad Investment Industrial

Bank Leumi Le

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Leumi Le Israel are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bank Leumi sustained solid returns over the last few months and may actually be approaching a breakup point.

Arad Investment Indu

Risk-Adjusted Performance

36 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Arad Investment Industrial are ranked lower than 36 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Arad Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Leumi and Arad Investment

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

The idea behind Bank Leumi Le Israel and Arad Investment Industrial 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.