Correlation Between Air Liquide and Givaudan

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

Diversification Opportunities for Air Liquide and Givaudan

-0.23

Correlation Coefficient

Air Liquide  Givaudan

Very good diversification

The 3 months correlation between Air and Givaudan is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Air 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 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 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 Air Liquide i.e., Air Liquide and Givaudan go up and down completely randomly.

Pair Corralation between Air Liquide and Givaudan

Assuming the 90 days horizon Air Liquide SA is expected to generate 0.4 times more return on investment than Givaudan. However, Air Liquide SA is 2.52 times less risky than Givaudan. It trades about 0.19 of its potential returns per unit of risk. Givaudan SA is currently generating about -0.05 per unit of risk. If you would invest  3,491  in Air Liquide SA on December 2, 2024 and sell it today you would earn a total of  177.00  from holding Air Liquide SA or generate 5.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Air Liquide SA  vs.  Givaudan SA

Air Liquide SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Liquide SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Air Liquide may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Givaudan SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Givaudan SA has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Air Liquide and Givaudan

The main advantage of trading using opposite Air Liquide and Givaudan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air 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 Air 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.