Correlation Between LAir Liquide and Swatch Group

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

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

Diversification Opportunities for LAir Liquide and Swatch Group

0.45

Correlation Coefficient

LAir Liquide  Swatch Group

Very weak diversification

The 3 months correlation between LAir and Swatch is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding LAir Liquide SA and The Swatch Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swatch Group and LAir 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 LAir Liquide SA are associated (or correlated) with Swatch Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swatch Group has no effect on the direction of LAir Liquide i.e., LAir Liquide and Swatch Group go up and down completely randomly.

Pair Corralation between LAir Liquide and Swatch Group

Assuming the 90 days trading horizon LAir Liquide SA is expected to generate 0.42 times more return on investment than Swatch Group. However, LAir Liquide SA is 2.39 times less risky than Swatch Group. It trades about 0.21 of its potential returns per unit of risk. The Swatch Group is currently generating about 0.0 per unit of risk. If you would invest  15,490  in LAir Liquide SA on December 22, 2024 and sell it today you would earn a total of  2,538  from holding LAir Liquide SA or generate 16.38% return on investment over 90 days.

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

LAir Liquide SA  vs.  The Swatch Group

LAir Liquide SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LAir Liquide SA are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, LAir Liquide unveiled solid returns over the last few months and may actually be approaching a breakup point.

Swatch Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Swatch Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Swatch Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with LAir Liquide and Swatch Group

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

The idea behind LAir Liquide SA and The Swatch 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 Transaction History module to view history of all your transactions and understand their impact on performance.