Correlation Between Air Products and Givaudan

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

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

Diversification Opportunities for Air Products and Givaudan

-0.63

Correlation Coefficient

Air Products  Givaudan

Excellent diversification

The 3 months correlation between Air and Givaudan is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Air Products Chemicals and Givaudan SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Givaudan SA and Air Products 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 Air Products Chemicals are associated (or correlated) with Givaudan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Givaudan SA has no effect on the direction of Air Products i.e., Air Products and Givaudan go up and down completely randomly.

Pair Corralation between Air Products and Givaudan

Assuming the 90 days trading horizon Air Products Chemicals is expected to generate 1.48 times more return on investment than Givaudan. However, Air Products is 1.48 times more volatile than Givaudan SA. It trades about 0.06 of its potential returns per unit of risk. Givaudan SA is currently generating about -0.14 per unit of risk. If you would invest  28,914  in Air Products Chemicals on September 19, 2024 and sell it today you would earn a total of  1,618  from holding Air Products Chemicals or generate 5.6% return on investment over 90 days.

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

Air Products Chemicals  vs.  Givaudan SA

Air Products Chemicals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products Chemicals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Air Products is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Givaudan SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Givaudan SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Air Products and Givaudan

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

The idea behind Air Products Chemicals and Givaudan SA 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.