Correlation Between LAir Liquide and Givaudan

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

Diversification Opportunities for LAir Liquide and Givaudan

0.03

Correlation Coefficient

LAir Liquide  Givaudan

Significant diversification

The 3 months correlation between LAir and Givaudan is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding LAir Liquide SA and Givaudan SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Givaudan SA 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 Givaudan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Givaudan SA has no effect on the direction of LAir Liquide i.e., LAir Liquide and Givaudan go up and down completely randomly.

Pair Corralation between LAir Liquide and Givaudan

Assuming the 90 days horizon LAir Liquide SA is expected to generate 0.47 times more return on investment than Givaudan. However, LAir Liquide SA is 2.11 times less risky than Givaudan. It trades about 0.23 of its potential returns per unit of risk. Givaudan SA is currently generating about 0.01 per unit of risk. If you would invest  15,654  in LAir Liquide SA on December 29, 2024 and sell it today you would earn a total of  3,370  from holding LAir Liquide SA or generate 21.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.08%
Values	Daily Returns

LAir Liquide SA  vs.  Givaudan SA

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 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, LAir Liquide reported solid returns over the last few months and may actually be approaching a breakup point.

Givaudan SA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Givaudan SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, Givaudan 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 Givaudan

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

The idea behind LAir Liquide SA and Givaudan 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.