Correlation Between Air Products and Kingfisher PLC

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

Diversification Opportunities for Air Products and Kingfisher PLC

-0.49

Correlation Coefficient

Air Products  Kingfisher PLC

Very good diversification

The 3 months correlation between Air and Kingfisher is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Air Products Chemicals and Kingfisher PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kingfisher PLC 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 Kingfisher PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kingfisher PLC has no effect on the direction of Air Products i.e., Air Products and Kingfisher PLC go up and down completely randomly.

Pair Corralation between Air Products and Kingfisher PLC

Assuming the 90 days trading horizon Air Products Chemicals is expected to generate 0.35 times more return on investment than Kingfisher PLC. However, Air Products Chemicals is 2.85 times less risky than Kingfisher PLC. It trades about -0.11 of its potential returns per unit of risk. Kingfisher PLC is currently generating about -0.17 per unit of risk. If you would invest  31,606  in Air Products Chemicals on September 16, 2024 and sell it today you would lose (825.00) from holding Air Products Chemicals or give up 2.61% of portfolio value over 90 days.

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

Air Products Chemicals  vs.  Kingfisher PLC

Air Products Chemicals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products Chemicals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Air Products may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Kingfisher PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kingfisher PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Air Products and Kingfisher PLC

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

The idea behind Air Products Chemicals and Kingfisher PLC 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.