Correlation Between Air Liquide and GEA GROUP

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

Diversification Opportunities for Air Liquide and GEA GROUP

0.9

Correlation Coefficient

Air Liquide  GEA GROUP

Almost no diversification

The 3 months correlation between Air and GEA is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Air Liquide SA and GEA GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEA GROUP 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 GEA GROUP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEA GROUP has no effect on the direction of Air Liquide i.e., Air Liquide and GEA GROUP go up and down completely randomly.

Pair Corralation between Air Liquide and GEA GROUP

Assuming the 90 days horizon Air Liquide is expected to generate 1.26 times less return on investment than GEA GROUP. But when comparing it to its historical volatility, Air Liquide SA is 1.1 times less risky than GEA GROUP. It trades about 0.24 of its potential returns per unit of risk. GEA GROUP is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  4,758  in GEA GROUP on December 20, 2024 and sell it today you would earn a total of  1,087  from holding GEA GROUP or generate 22.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.33%
Values	Daily Returns

Air Liquide SA  vs.  GEA GROUP

Air Liquide SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Air Liquide SA are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Air Liquide reported solid returns over the last few months and may actually be approaching a breakup point.

GEA GROUP

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GEA GROUP are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GEA GROUP reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Liquide and GEA GROUP

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

The idea behind Air Liquide SA and GEA GROUP 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.