Correlation Between Air Products and LyondellBasell Industries

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

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

Diversification Opportunities for Air Products and LyondellBasell Industries

0.77

Correlation Coefficient

Air Products  LyondellBasell Industries

Poor diversification

The 3 months correlation between Air and LyondellBasell is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Air Products and and LyondellBasell Industries NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LyondellBasell Industries and Air Products 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 Products and are associated (or correlated) with LyondellBasell Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LyondellBasell Industries has no effect on the direction of Air Products i.e., Air Products and LyondellBasell Industries go up and down completely randomly.

Pair Corralation between Air Products and LyondellBasell Industries

Considering the 90-day investment horizon Air Products and is expected to generate 0.96 times more return on investment than LyondellBasell Industries. However, Air Products and is 1.04 times less risky than LyondellBasell Industries. It trades about 0.03 of its potential returns per unit of risk. LyondellBasell Industries NV is currently generating about -0.02 per unit of risk. If you would invest  28,693  in Air Products and on December 30, 2024 and sell it today you would earn a total of  534.00  from holding Air Products and or generate 1.86% return on investment over 90 days.

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

Air Products and  vs.  LyondellBasell Industries NV

Air Products

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products and are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Air Products is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

LyondellBasell Industries

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Air Products and LyondellBasell Industries

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

The idea behind Air Products and and LyondellBasell Industries NV 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.