Correlation Between Air Liquide and Incitec Pivot

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

Diversification Opportunities for Air Liquide and Incitec Pivot

0.22

Correlation Coefficient

Air Liquide  Incitec Pivot

Modest diversification

The 3 months correlation between Air and Incitec is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Air Liquide SA and Incitec Pivot Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Incitec Pivot 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 Incitec Pivot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Incitec Pivot has no effect on the direction of Air Liquide i.e., Air Liquide and Incitec Pivot go up and down completely randomly.

Pair Corralation between Air Liquide and Incitec Pivot

Assuming the 90 days horizon Air Liquide SA is expected to under-perform the Incitec Pivot. But the pink sheet apears to be less risky and, when comparing its historical volatility, Air Liquide SA is 3.66 times less risky than Incitec Pivot. The pink sheet trades about -0.32 of its potential returns per unit of risk. The Incitec Pivot Ltd is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  196.00  in Incitec Pivot Ltd on October 5, 2024 and sell it today you would earn a total of  25.00  from holding Incitec Pivot Ltd or generate 12.76% return on investment over 90 days.

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

Air Liquide SA  vs.  Incitec Pivot Ltd

Air Liquide SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Incitec Pivot

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Incitec Pivot Ltd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Incitec Pivot showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Liquide and Incitec Pivot

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

The idea behind Air Liquide SA and Incitec Pivot Ltd 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.