Correlation Between Migdal Insurance and Allot Communications

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

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

Diversification Opportunities for Migdal Insurance and Allot Communications

0.88

Correlation Coefficient

Migdal Insurance  Allot Communications

Very poor diversification

The 3 months correlation between Migdal and Allot is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Migdal Insurance and Allot Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allot Communications and Migdal Insurance 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 Migdal Insurance are associated (or correlated) with Allot Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allot Communications has no effect on the direction of Migdal Insurance i.e., Migdal Insurance and Allot Communications go up and down completely randomly.

Pair Corralation between Migdal Insurance and Allot Communications

Assuming the 90 days trading horizon Migdal Insurance is expected to generate 2.24 times less return on investment than Allot Communications. But when comparing it to its historical volatility, Migdal Insurance is 3.15 times less risky than Allot Communications. It trades about 0.37 of its potential returns per unit of risk. Allot Communications is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  109,500  in Allot Communications on September 30, 2024 and sell it today you would earn a total of  82,500  from holding Allot Communications or generate 75.34% return on investment over 90 days.

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

Migdal Insurance  vs.  Allot Communications

Migdal Insurance

Risk-Adjusted Performance

29 of 100

Strong

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

Allot Communications

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Allot Communications are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Allot Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Migdal Insurance and Allot Communications

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

The idea behind Migdal Insurance and Allot Communications 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.