Correlation Between Tel Aviv and Baran

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

Diversification Opportunities for Tel Aviv and Baran

0.26

Correlation Coefficient

Tel Aviv  Baran

Modest diversification

The 3 months correlation between Tel and Baran is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Tel Aviv 35 and Baran Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baran Group 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 Baran. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baran Group has no effect on the direction of Tel Aviv i.e., Tel Aviv and Baran go up and down completely randomly.

Pair Corralation between Tel Aviv and Baran

Assuming the 90 days trading horizon Tel Aviv 35 is expected to under-perform the Baran. But the index apears to be less risky and, when comparing its historical volatility, Tel Aviv 35 is 1.73 times less risky than Baran. The index trades about -0.09 of its potential returns per unit of risk. The Baran Group is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  110,000  in Baran Group on February 7, 2024 and sell it today you would lose (500.00) from holding Baran Group or give up 0.45% of portfolio value over 90 days.

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

Tel Aviv 35  vs.  Baran Group

Pair Trading with Tel Aviv and Baran

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

The idea behind Tel Aviv 35 and Baran Group 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.