Correlation Between Migdal Insurance and Sofwave Medical

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

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

Diversification Opportunities for Migdal Insurance and Sofwave Medical

-0.17

Correlation Coefficient

Migdal Insurance  Sofwave Medical

Good diversification

The 3 months correlation between Migdal and Sofwave is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Migdal Insurance and Sofwave Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sofwave Medical 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 Sofwave Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sofwave Medical has no effect on the direction of Migdal Insurance i.e., Migdal Insurance and Sofwave Medical go up and down completely randomly.

Pair Corralation between Migdal Insurance and Sofwave Medical

Assuming the 90 days trading horizon Migdal Insurance is expected to generate 0.51 times more return on investment than Sofwave Medical. However, Migdal Insurance is 1.97 times less risky than Sofwave Medical. It trades about 0.39 of its potential returns per unit of risk. Sofwave Medical is currently generating about -0.06 per unit of risk. If you would invest  50,605  in Migdal Insurance on September 27, 2024 and sell it today you would earn a total of  16,095  from holding Migdal Insurance or generate 31.81% return on investment over 90 days.

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

Migdal Insurance  vs.  Sofwave Medical

Migdal Insurance

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Migdal Insurance are ranked lower than 30 (%) 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.

Sofwave Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sofwave Medical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Migdal Insurance and Sofwave Medical

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

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