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 ADR, 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

0.93

Correlation Coefficient

BASF SE  AIR LIQUIDE

Almost no diversification

The 3 months correlation between BASF and AIR is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE and AIR LIQUIDE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIR LIQUIDE ADR 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 ADR 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 generate 1.93 times more return on investment than AIR LIQUIDE. However, BASF SE is 1.93 times more volatile than AIR LIQUIDE ADR. It trades about 0.1 of its potential returns per unit of risk. AIR LIQUIDE ADR is currently generating about 0.15 per unit of risk. If you would invest  1,040  in BASF SE on December 28, 2024 and sell it today you would earn a total of  170.00  from holding BASF SE or generate 16.35% return on investment over 90 days.

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

BASF SE  vs.  AIR LIQUIDE ADR

BASF SE

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BASF SE are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BASF SE reported solid returns over the last few months and may actually be approaching a breakup point.

AIR LIQUIDE ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AIR LIQUIDE ADR are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating essential indicators, AIR LIQUIDE reported solid returns over the last few months and may actually be approaching a breakup point.

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 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.