Correlation Between Air Liquide and Nitto Denko

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

Diversification Opportunities for Air Liquide and Nitto Denko

0.6

Correlation Coefficient

Air Liquide  Nitto Denko

Poor diversification

The 3 months correlation between Air and Nitto is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Air Liquide SA and Nitto Denko Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nitto Denko Corp 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 Nitto Denko. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nitto Denko Corp has no effect on the direction of Air Liquide i.e., Air Liquide and Nitto Denko go up and down completely randomly.

Pair Corralation between Air Liquide and Nitto Denko

Assuming the 90 days horizon Air Liquide SA is expected to under-perform the Nitto Denko. But the pink sheet apears to be less risky and, when comparing its historical volatility, Air Liquide SA is 1.67 times less risky than Nitto Denko. The pink sheet trades about -0.14 of its potential returns per unit of risk. The Nitto Denko Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,635  in Nitto Denko Corp on September 1, 2024 and sell it today you would lose (46.00) from holding Nitto Denko Corp or give up 2.81% of portfolio value over 90 days.

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

Air Liquide SA  vs.  Nitto Denko Corp

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Nitto Denko Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nitto Denko Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, Nitto Denko is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Air Liquide and Nitto Denko

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

The idea behind Air Liquide SA and Nitto Denko Corp 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.