Correlation Between Ratio Oil and Israel Discount

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

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

Diversification Opportunities for Ratio Oil and Israel Discount

0.27

Correlation Coefficient

Ratio Oil  Israel Discount

Modest diversification

The 3 months correlation between Ratio and Israel is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Ratio Oil Explorations and Israel Discount Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Israel Discount Bank and Ratio Oil 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 Ratio Oil Explorations are associated (or correlated) with Israel Discount. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Israel Discount Bank has no effect on the direction of Ratio Oil i.e., Ratio Oil and Israel Discount go up and down completely randomly.

Pair Corralation between Ratio Oil and Israel Discount

Assuming the 90 days trading horizon Ratio Oil is expected to generate 1.1 times less return on investment than Israel Discount. But when comparing it to its historical volatility, Ratio Oil Explorations is 1.06 times less risky than Israel Discount. It trades about 0.28 of its potential returns per unit of risk. Israel Discount Bank is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  198,242  in Israel Discount Bank on September 12, 2024 and sell it today you would earn a total of  50,858  from holding Israel Discount Bank or generate 25.65% return on investment over 90 days.

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

Ratio Oil Explorations  vs.  Israel Discount Bank

Ratio Oil Explorations

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ratio Oil Explorations are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ratio Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Israel Discount Bank

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Israel Discount Bank are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Israel Discount sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ratio Oil and Israel Discount

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

The idea behind Ratio Oil Explorations and Israel Discount Bank 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 Global Correlations module to find global opportunities by holding instruments from different markets.