Correlation Between Lodzia and Migdal Insurance

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

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

Diversification Opportunities for Lodzia and Migdal Insurance

0.75

Correlation Coefficient

Lodzia  Migdal Insurance

Poor diversification

The 3 months correlation between Lodzia and Migdal is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Lodzia and Migdal Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Migdal Insurance and Lodzia 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 Lodzia are associated (or correlated) with Migdal Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Migdal Insurance has no effect on the direction of Lodzia i.e., Lodzia and Migdal Insurance go up and down completely randomly.

Pair Corralation between Lodzia and Migdal Insurance

Assuming the 90 days trading horizon Lodzia is expected to generate 0.22 times more return on investment than Migdal Insurance. However, Lodzia is 4.52 times less risky than Migdal Insurance. It trades about -0.34 of its potential returns per unit of risk. Migdal Insurance is currently generating about -0.24 per unit of risk. If you would invest  264,300  in Lodzia on February 2, 2024 and sell it today you would lose (7,800) from holding Lodzia or give up 2.95% of portfolio value over 90 days.

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

Lodzia  vs.  Migdal Insurance

Lodzia

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lodzia are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lodzia may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Migdal Insurance

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Lodzia and Migdal Insurance

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

The idea behind Lodzia and Migdal Insurance 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.