Correlation Between Air Liquide and Bouygues

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

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

Diversification Opportunities for Air Liquide and Bouygues

0.91

Correlation Coefficient

Air Liquide  Bouygues

Almost no diversification

The 3 months correlation between Air and Bouygues is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Air Liquide SA and Bouygues SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bouygues SA and Air Liquide 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 Liquide SA are associated (or correlated) with Bouygues. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bouygues SA has no effect on the direction of Air Liquide i.e., Air Liquide and Bouygues go up and down completely randomly.

Pair Corralation between Air Liquide and Bouygues

Assuming the 90 days horizon Air Liquide is expected to generate 1.94 times less return on investment than Bouygues. But when comparing it to its historical volatility, Air Liquide SA is 1.04 times less risky than Bouygues. It trades about 0.2 of its potential returns per unit of risk. Bouygues SA is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  2,854  in Bouygues SA on December 29, 2024 and sell it today you would earn a total of  837.00  from holding Bouygues SA or generate 29.33% return on investment over 90 days.

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

Air Liquide SA  vs.  Bouygues SA

Air Liquide SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Liquide SA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Air Liquide sustained solid returns over the last few months and may actually be approaching a breakup point.

Bouygues SA

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Bouygues SA are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bouygues sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Liquide and Bouygues

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

The idea behind Air Liquide SA and Bouygues 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.