Correlation Between Cars and Air Products

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

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

Diversification Opportunities for Cars and Air Products

-0.04

Correlation Coefficient

Cars  Air Products

Good diversification

The 3 months correlation between Cars and Air is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Air Products Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products Chemicals and Cars 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 Cars Inc are associated (or correlated) with Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products Chemicals has no effect on the direction of Cars i.e., Cars and Air Products go up and down completely randomly.

Pair Corralation between Cars and Air Products

Assuming the 90 days trading horizon Cars Inc is expected to under-perform the Air Products. In addition to that, Cars is 3.15 times more volatile than Air Products Chemicals. It trades about -0.36 of its total potential returns per unit of risk. Air Products Chemicals is currently generating about -0.82 per unit of volatility. If you would invest  33,491  in Air Products Chemicals on September 25, 2024 and sell it today you would lose (4,235) from holding Air Products Chemicals or give up 12.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	76.19%
Values	Daily Returns

Cars Inc  vs.  Air Products Chemicals

Cars Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cars Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cars is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Air Products Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air Products Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Cars and Air Products

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

The idea behind Cars Inc and Air Products Chemicals 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.