Correlation Between Alstom SA and Air Liquide

Can any of the company-specific risk be diversified away by investing in both Alstom SA and Air Liquide 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 Alstom SA and Air Liquide into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alstom SA and Air Liquide SA, you can compare the effects of market volatilities on Alstom SA and Air Liquide 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 Alstom SA with a short position of Air Liquide. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alstom SA and Air Liquide.

Diversification Opportunities for Alstom SA and Air Liquide

0.47

Correlation Coefficient

Alstom SA  Air Liquide

Very weak diversification

The 3 months correlation between Alstom and Air is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Alstom SA and Air Liquide SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Liquide SA and Alstom SA 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 Alstom SA are associated (or correlated) with Air Liquide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Liquide SA has no effect on the direction of Alstom SA i.e., Alstom SA and Air Liquide go up and down completely randomly.

Pair Corralation between Alstom SA and Air Liquide

Assuming the 90 days trading horizon Alstom SA is expected to generate 150.71 times less return on investment than Air Liquide. In addition to that, Alstom SA is 3.31 times more volatile than Air Liquide SA. It trades about 0.0 of its total potential returns per unit of risk. Air Liquide SA is currently generating about 0.2 per unit of volatility. If you would invest  15,462  in Air Liquide SA on December 29, 2024 and sell it today you would earn a total of  2,170  from holding Air Liquide SA or generate 14.03% return on investment over 90 days.

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

Alstom SA  vs.  Air Liquide SA

Alstom SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alstom SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Alstom SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Air Liquide sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alstom SA and Air Liquide

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

The idea behind Alstom SA and Air Liquide 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.