Correlation Between Tel Aviv and Rotshtein

Can any of the company-specific risk be diversified away by investing in both Tel Aviv and Rotshtein 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 Rotshtein 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 Rotshtein, you can compare the effects of market volatilities on Tel Aviv and Rotshtein 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 Rotshtein. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tel Aviv and Rotshtein.

Diversification Opportunities for Tel Aviv and Rotshtein

0.9

Correlation Coefficient

Tel Aviv  Rotshtein

Almost no diversification

The 3 months correlation between Tel and Rotshtein is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Tel Aviv 35 and Rotshtein in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rotshtein 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 Rotshtein. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rotshtein has no effect on the direction of Tel Aviv i.e., Tel Aviv and Rotshtein go up and down completely randomly.

Pair Corralation between Tel Aviv and Rotshtein

Assuming the 90 days trading horizon Tel Aviv is expected to generate 2.19 times less return on investment than Rotshtein. But when comparing it to its historical volatility, Tel Aviv 35 is 2.52 times less risky than Rotshtein. It trades about 0.31 of its potential returns per unit of risk. Rotshtein is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  451,502  in Rotshtein on September 27, 2024 and sell it today you would earn a total of  131,498  from holding Rotshtein or generate 29.12% return on investment over 90 days.

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

Tel Aviv 35  vs.  Rotshtein

Pair Trading with Tel Aviv and Rotshtein

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

The idea behind Tel Aviv 35 and Rotshtein 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.