Correlation Between Air Liquide and Eiffage SA

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

Diversification Opportunities for Air Liquide and Eiffage SA

0.83

Correlation Coefficient

Air Liquide  Eiffage SA

Very poor diversification

The 3 months correlation between Air and Eiffage is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Air Liquide SA and Eiffage SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eiffage 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 Eiffage SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eiffage SA has no effect on the direction of Air Liquide i.e., Air Liquide and Eiffage SA go up and down completely randomly.

Pair Corralation between Air Liquide and Eiffage SA

Assuming the 90 days horizon Air Liquide is expected to generate 2.14 times less return on investment than Eiffage SA. But when comparing it to its historical volatility, Air Liquide SA is 1.65 times less risky than Eiffage SA. It trades about 0.2 of its potential returns per unit of risk. Eiffage SA is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  8,332  in Eiffage SA on December 28, 2024 and sell it today you would earn a total of  2,673  from holding Eiffage SA or generate 32.08% return on investment over 90 days.

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

Air Liquide SA  vs.  Eiffage 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.

Eiffage SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eiffage SA are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eiffage SA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Liquide and Eiffage SA

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

The idea behind Air Liquide SA and Eiffage 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.