Correlation Between Air Liquide and Orica

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

Diversification Opportunities for Air Liquide and Orica

0.49

Correlation Coefficient

Air Liquide  Orica

Very weak diversification

The 3 months correlation between Air and Orica is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Air Liquide SA and Orica Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orica Ltd ADR 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 Orica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orica Ltd ADR has no effect on the direction of Air Liquide i.e., Air Liquide and Orica go up and down completely randomly.

Pair Corralation between Air Liquide and Orica

Assuming the 90 days horizon Air Liquide SA is expected to under-perform the Orica. But the pink sheet apears to be less risky and, when comparing its historical volatility, Air Liquide SA is 2.66 times less risky than Orica. The pink sheet trades about -0.13 of its potential returns per unit of risk. The Orica Ltd ADR is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,209  in Orica Ltd ADR on September 4, 2024 and sell it today you would lose (109.00) from holding Orica Ltd ADR or give up 9.02% of portfolio value over 90 days.

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

Air Liquide SA  vs.  Orica Ltd ADR

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.

Orica Ltd ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orica Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Orica 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 Orica

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

The idea behind Air Liquide SA and Orica Ltd ADR 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.