Correlation Between Givaudan and LAir Liquide

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

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

Diversification Opportunities for Givaudan and LAir Liquide

0.03

Correlation Coefficient

Givaudan  LAir Liquide

Significant diversification

The 3 months correlation between Givaudan and LAir is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Givaudan SA and LAir Liquide SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAir Liquide SA and Givaudan 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 Givaudan SA are associated (or correlated) with LAir Liquide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LAir Liquide SA has no effect on the direction of Givaudan i.e., Givaudan and LAir Liquide go up and down completely randomly.

Pair Corralation between Givaudan and LAir Liquide

Assuming the 90 days horizon Givaudan is expected to generate 8.41 times less return on investment than LAir Liquide. In addition to that, Givaudan is 2.11 times more volatile than LAir Liquide SA. It trades about 0.01 of its total potential returns per unit of risk. LAir Liquide SA is currently generating about 0.23 per unit of volatility. If you would invest  15,654  in LAir Liquide SA on December 29, 2024 and sell it today you would earn a total of  3,370  from holding LAir Liquide SA or generate 21.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.08%
Values	Daily Returns

Givaudan SA  vs.  LAir Liquide SA

Givaudan SA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Givaudan SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, Givaudan is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

LAir Liquide SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LAir Liquide SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, LAir Liquide reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Givaudan and LAir Liquide

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

The idea behind Givaudan SA and LAir 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.

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.