Correlation Between Associated British and Air Products

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

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

Diversification Opportunities for Associated British and Air Products

0.66

Correlation Coefficient

Associated British  Air Products

Poor diversification

The 3 months correlation between Associated and Air is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods 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 Associated British 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 Associated British Foods 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 Associated British i.e., Associated British and Air Products go up and down completely randomly.

Pair Corralation between Associated British and Air Products

Assuming the 90 days trading horizon Associated British is expected to generate 4.94 times less return on investment than Air Products. But when comparing it to its historical volatility, Associated British Foods is 3.97 times less risky than Air Products. It trades about 0.02 of its potential returns per unit of risk. Air Products Chemicals is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  29,368  in Air Products Chemicals on October 13, 2024 and sell it today you would lose (40.00) from holding Air Products Chemicals or give up 0.14% of portfolio value over 90 days.

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

Associated British Foods  vs.  Air Products Chemicals

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 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 Associated British and Air Products

The main advantage of trading using opposite Associated British and Air Products positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Associated British 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 Associated British Foods 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.