Correlation Between BASF SE and Air Liquide

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

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

Diversification Opportunities for BASF SE and Air Liquide

0.72

Correlation Coefficient

BASF SE  Air Liquide

Poor diversification

The 3 months correlation between BASF and Air is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE 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 BASF SE 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 BASF SE 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 BASF SE i.e., BASF SE and Air Liquide go up and down completely randomly.

Pair Corralation between BASF SE and Air Liquide

Assuming the 90 days trading horizon BASF SE is expected to under-perform the Air Liquide. In addition to that, BASF SE is 1.62 times more volatile than Air Liquide SA. It trades about -0.06 of its total potential returns per unit of risk. Air Liquide SA is currently generating about -0.1 per unit of volatility. If you would invest  16,822  in Air Liquide SA on August 30, 2024 and sell it today you would lose (1,240) from holding Air Liquide SA or give up 7.37% of portfolio value over 90 days.

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

BASF SE  vs.  Air Liquide SA

BASF SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BASF SE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with BASF SE and Air Liquide

The main advantage of trading using opposite BASF SE and Air Liquide positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BASF SE 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 BASF SE 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.

Check out your portfolio center.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.