Correlation Between Tel Aviv and OPC Energy

Can any of the company-specific risk be diversified away by investing in both Tel Aviv and OPC Energy 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 Tel Aviv and OPC Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tel Aviv 35 and OPC Energy, you can compare the effects of market volatilities on Tel Aviv and OPC Energy 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 Tel Aviv with a short position of OPC Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tel Aviv and OPC Energy.

Diversification Opportunities for Tel Aviv and OPC Energy

0.65

Correlation Coefficient

Tel Aviv  OPC Energy

Poor diversification

The 3 months correlation between Tel and OPC is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Tel Aviv 35 and OPC Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OPC Energy and Tel Aviv 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 Tel Aviv 35 are associated (or correlated) with OPC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OPC Energy has no effect on the direction of Tel Aviv i.e., Tel Aviv and OPC Energy go up and down completely randomly.

Pair Corralation between Tel Aviv and OPC Energy

Assuming the 90 days trading horizon Tel Aviv 35 is expected to generate 0.48 times more return on investment than OPC Energy. However, Tel Aviv 35 is 2.1 times less risky than OPC Energy. It trades about 0.35 of its potential returns per unit of risk. OPC Energy is currently generating about 0.07 per unit of risk. If you would invest  201,921  in Tel Aviv 35 on September 16, 2024 and sell it today you would earn a total of  31,625  from holding Tel Aviv 35 or generate 15.66% return on investment over 90 days.

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

Tel Aviv 35  vs.  OPC Energy

Pair Trading with Tel Aviv and OPC Energy

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

The idea behind Tel Aviv 35 and OPC Energy 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.