Correlation Between Air Products and Talon Energy

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

Diversification Opportunities for Air Products and Talon Energy

-0.52

Correlation Coefficient

Air Products  Talon Energy

Excellent diversification

The 3 months correlation between Air and Talon is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Air Products and and Talon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Talon Energy 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 Talon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Talon Energy has no effect on the direction of Air Products i.e., Air Products and Talon Energy go up and down completely randomly.

Pair Corralation between Air Products and Talon Energy

Considering the 90-day investment horizon Air Products is expected to generate 671.51 times less return on investment than Talon Energy. But when comparing it to its historical volatility, Air Products and is 51.7 times less risky than Talon Energy. It trades about 0.01 of its potential returns per unit of risk. Talon Energy is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.50  in Talon Energy on September 29, 2024 and sell it today you would earn a total of  4.50  from holding Talon Energy or generate 900.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	27.22%
Values	Daily Returns

Air Products and  vs.  Talon Energy

Air Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air Products and has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Talon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Talon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Talon Energy is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Air Products and Talon Energy

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

The idea behind Air Products and and Talon Energy 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.