Correlation Between LAir Liquide and Arkema SA

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

Diversification Opportunities for LAir Liquide and Arkema SA

0.87

Correlation Coefficient

LAir Liquide  Arkema SA

Very poor diversification

The 3 months correlation between LAir and Arkema is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding LAir Liquide SA and Arkema SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arkema SA ADR 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 Arkema SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arkema SA ADR has no effect on the direction of LAir Liquide i.e., LAir Liquide and Arkema SA go up and down completely randomly.

Pair Corralation between LAir Liquide and Arkema SA

Assuming the 90 days horizon LAir Liquide SA is expected to under-perform the Arkema SA. But the pink sheet apears to be less risky and, when comparing its historical volatility, LAir Liquide SA is 1.54 times less risky than Arkema SA. The pink sheet trades about -0.17 of its potential returns per unit of risk. The Arkema SA ADR is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  9,134  in Arkema SA ADR on September 3, 2024 and sell it today you would lose (1,210) from holding Arkema SA ADR or give up 13.25% of portfolio value over 90 days.

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

LAir Liquide SA  vs.  Arkema SA ADR

LAir Liquide SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LAir Liquide SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak 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.

Arkema SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arkema SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with LAir Liquide and Arkema SA

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

The idea behind LAir Liquide SA and Arkema SA ADR 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 Stocks Directory module to find actively traded stocks across global markets.