Correlation Between Air Liquide and Sumitomo Chemical

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

Diversification Opportunities for Air Liquide and Sumitomo Chemical

0.84

Correlation Coefficient

Air Liquide  Sumitomo Chemical

Very poor diversification

The 3 months correlation between Air and Sumitomo is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Air Liquide SA and Sumitomo Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Chemical 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 Sumitomo Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Chemical has no effect on the direction of Air Liquide i.e., Air Liquide and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between Air Liquide and Sumitomo Chemical

Assuming the 90 days horizon Air Liquide SA is expected to generate 0.64 times more return on investment than Sumitomo Chemical. However, Air Liquide SA is 1.55 times less risky than Sumitomo Chemical. It trades about -0.16 of its potential returns per unit of risk. Sumitomo Chemical is currently generating about -0.32 per unit of risk. If you would invest  16,006  in Air Liquide SA on September 22, 2024 and sell it today you would lose (510.00) from holding Air Liquide SA or give up 3.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Air Liquide SA  vs.  Sumitomo Chemical

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 fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Sumitomo Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumitomo Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Air Liquide and Sumitomo Chemical

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

The idea behind Air Liquide SA and Sumitomo Chemical 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.