Correlation Between Shapir Engineering and RSL Electronics

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

By analyzing existing cross correlation between Shapir Engineering Industry and RSL Electronics, you can compare the effects of market volatilities on Shapir Engineering and RSL Electronics 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 Shapir Engineering with a short position of RSL Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shapir Engineering and RSL Electronics.

Diversification Opportunities for Shapir Engineering and RSL Electronics

0.82

Correlation Coefficient

Shapir Engineering  RSL Electronics

Very poor diversification

The 3 months correlation between Shapir and RSL is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Shapir Engineering Industry and RSL Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RSL Electronics and Shapir Engineering 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 Shapir Engineering Industry are associated (or correlated) with RSL Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RSL Electronics has no effect on the direction of Shapir Engineering i.e., Shapir Engineering and RSL Electronics go up and down completely randomly.

Pair Corralation between Shapir Engineering and RSL Electronics

Assuming the 90 days trading horizon Shapir Engineering is expected to generate 1.15 times less return on investment than RSL Electronics. But when comparing it to its historical volatility, Shapir Engineering Industry is 1.14 times less risky than RSL Electronics. It trades about 0.3 of its potential returns per unit of risk. RSL Electronics is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  72,300  in RSL Electronics on September 25, 2024 and sell it today you would earn a total of  9,200  from holding RSL Electronics or generate 12.72% return on investment over 90 days.

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

Shapir Engineering Industry  vs.  RSL Electronics

Shapir Engineering

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Shapir Engineering Industry are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shapir Engineering sustained solid returns over the last few months and may actually be approaching a breakup point.

RSL Electronics

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RSL Electronics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, RSL Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shapir Engineering and RSL Electronics

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

The idea behind Shapir Engineering Industry and RSL Electronics 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.