Correlation Between Future Metals and Air Products

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

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

Diversification Opportunities for Future Metals and Air Products

0.17

Correlation Coefficient

Future Metals  Air Products

Average diversification

The 3 months correlation between Future and Air is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Future Metals NL and Air Products Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products Chemicals and Future Metals 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 Future Metals NL are associated (or correlated) with Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products Chemicals has no effect on the direction of Future Metals i.e., Future Metals and Air Products go up and down completely randomly.

Pair Corralation between Future Metals and Air Products

Assuming the 90 days trading horizon Future Metals NL is expected to under-perform the Air Products. In addition to that, Future Metals is 1.91 times more volatile than Air Products Chemicals. It trades about 0.0 of its total potential returns per unit of risk. Air Products Chemicals is currently generating about 0.13 per unit of volatility. If you would invest  27,681  in Air Products Chemicals on September 12, 2024 and sell it today you would earn a total of  3,781  from holding Air Products Chemicals or generate 13.66% return on investment over 90 days.

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

Future Metals NL  vs.  Air Products Chemicals

Future Metals NL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Future Metals NL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Future Metals is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Air Products Chemicals

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products Chemicals are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Air Products unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Future Metals and Air Products

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

The idea behind Future Metals NL and Air Products Chemicals 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.