Correlation Between Air Liquide and Safran SA

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

Diversification Opportunities for Air Liquide and Safran SA

-0.42

Correlation Coefficient

Air Liquide  Safran SA

Very good diversification

The 3 months correlation between Air and Safran is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Air Liquide SA and Safran SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safran 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 Safran SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safran SA has no effect on the direction of Air Liquide i.e., Air Liquide and Safran SA go up and down completely randomly.

Pair Corralation between Air Liquide and Safran SA

Assuming the 90 days horizon Air Liquide SA is expected to under-perform the Safran SA. But the stock apears to be less risky and, when comparing its historical volatility, Air Liquide SA is 1.16 times less risky than Safran SA. The stock trades about -0.09 of its potential returns per unit of risk. The Safran SA is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  19,720  in Safran SA on September 2, 2024 and sell it today you would earn a total of  2,330  from holding Safran SA or generate 11.82% return on investment over 90 days.

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

Air Liquide SA  vs.  Safran SA

Air Liquide SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air Liquide SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Safran SA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Safran SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Safran SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Air Liquide and Safran SA

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

The idea behind Air Liquide SA and Safran 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.