Correlation Between Air Liquide and Covestro

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

Diversification Opportunities for Air Liquide and Covestro

-0.46

Correlation Coefficient

Air Liquide  Covestro

Very good diversification

The 3 months correlation between Air and Covestro is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Air Liquide SA and Covestro AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Covestro AG 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 Covestro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Covestro AG has no effect on the direction of Air Liquide i.e., Air Liquide and Covestro go up and down completely randomly.

Pair Corralation between Air Liquide and Covestro

Assuming the 90 days horizon Air Liquide SA is expected to generate 6.04 times more return on investment than Covestro. However, Air Liquide is 6.04 times more volatile than Covestro AG. It trades about 0.22 of its potential returns per unit of risk. Covestro AG is currently generating about -0.13 per unit of risk. If you would invest  3,347  in Air Liquide SA on December 13, 2024 and sell it today you would earn a total of  562.00  from holding Air Liquide SA or generate 16.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.65%
Values	Daily Returns

Air Liquide SA  vs.  Covestro AG

Air Liquide SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Air Liquide SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Air Liquide showed solid returns over the last few months and may actually be approaching a breakup point.

Covestro AG

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Air Liquide and Covestro

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

The idea behind Air Liquide SA and Covestro 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.