Correlation Between LAir Liquide and Lanxess AG

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

Diversification Opportunities for LAir Liquide and Lanxess AG

0.73

Correlation Coefficient

LAir Liquide  Lanxess AG

Poor diversification

The 3 months correlation between LAir and Lanxess is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding LAir Liquide SA and Lanxess AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lanxess AG 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 Lanxess AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lanxess AG has no effect on the direction of LAir Liquide i.e., LAir Liquide and Lanxess AG go up and down completely randomly.

Pair Corralation between LAir Liquide and Lanxess AG

Assuming the 90 days horizon LAir Liquide SA is expected to generate 0.49 times more return on investment than Lanxess AG. However, LAir Liquide SA is 2.04 times less risky than Lanxess AG. It trades about 0.03 of its potential returns per unit of risk. Lanxess AG is currently generating about -0.05 per unit of risk. If you would invest  13,553  in LAir Liquide SA on October 3, 2024 and sell it today you would earn a total of  2,101  from holding LAir Liquide SA or generate 15.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	78.79%
Values	Daily Returns

LAir Liquide SA  vs.  Lanxess AG

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 abnormal performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Lanxess AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lanxess AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady 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.

Pair Trading with LAir Liquide and Lanxess AG

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

The idea behind LAir Liquide SA and Lanxess AG 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.