Correlation Between Tower Semiconductor and Kenon Holdings

Can any of the company-specific risk be diversified away by investing in both Tower Semiconductor and Kenon Holdings 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 Tower Semiconductor and Kenon Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tower Semiconductor and Kenon Holdings, you can compare the effects of market volatilities on Tower Semiconductor and Kenon Holdings 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 Tower Semiconductor with a short position of Kenon Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tower Semiconductor and Kenon Holdings.

Diversification Opportunities for Tower Semiconductor and Kenon Holdings

0.82

Correlation Coefficient

Tower Semiconductor  Kenon Holdings

Very poor diversification

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

Pair Corralation between Tower Semiconductor and Kenon Holdings

Assuming the 90 days trading horizon Tower Semiconductor is expected to generate 1.02 times less return on investment than Kenon Holdings. In addition to that, Tower Semiconductor is 1.33 times more volatile than Kenon Holdings. It trades about 0.11 of its total potential returns per unit of risk. Kenon Holdings is currently generating about 0.16 per unit of volatility. If you would invest  951,000  in Kenon Holdings on September 15, 2024 and sell it today you would earn a total of  134,000  from holding Kenon Holdings or generate 14.09% return on investment over 90 days.

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

Tower Semiconductor  vs.  Kenon Holdings

Tower Semiconductor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tower Semiconductor are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tower Semiconductor sustained solid returns over the last few months and may actually be approaching a breakup point.

Kenon Holdings

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kenon Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kenon Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tower Semiconductor and Kenon Holdings

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

The idea behind Tower Semiconductor and Kenon Holdings 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.