Correlation Between Teva Pharmaceutical and El Al

Can any of the company-specific risk be diversified away by investing in both Teva Pharmaceutical and El Al 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 Teva Pharmaceutical and El Al into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Teva Pharmaceutical Industries and El Al Israel, you can compare the effects of market volatilities on Teva Pharmaceutical and El Al 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 Teva Pharmaceutical with a short position of El Al. Check out your portfolio center. Please also check ongoing floating volatility patterns of Teva Pharmaceutical and El Al.

Diversification Opportunities for Teva Pharmaceutical and El Al

-0.27

Correlation Coefficient

Teva Pharmaceutical  El Al

Very good diversification

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

Pair Corralation between Teva Pharmaceutical and El Al

Assuming the 90 days trading horizon Teva Pharmaceutical Industries is expected to generate 0.51 times more return on investment than El Al. However, Teva Pharmaceutical Industries is 1.97 times less risky than El Al. It trades about -0.04 of its potential returns per unit of risk. El Al Israel is currently generating about -0.05 per unit of risk. If you would invest  648,000  in Teva Pharmaceutical Industries on September 12, 2024 and sell it today you would lose (19,200) from holding Teva Pharmaceutical Industries or give up 2.96% of portfolio value over 90 days.

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

Teva Pharmaceutical Industries  vs.  El Al Israel

Teva Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teva Pharmaceutical Industries 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.

El Al Israel

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in El Al Israel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, El Al sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Teva Pharmaceutical and El Al

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

The idea behind Teva Pharmaceutical Industries and El Al Israel 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.