Correlation Between Givaudan and LyondellBasell Industries

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

By analyzing existing cross correlation between Givaudan SA and LyondellBasell Industries NV, you can compare the effects of market volatilities on Givaudan and LyondellBasell Industries 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 LyondellBasell Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Givaudan and LyondellBasell Industries.

Diversification Opportunities for Givaudan and LyondellBasell Industries

0.68

Correlation Coefficient

Givaudan  LyondellBasell Industries

Poor diversification

The 3 months correlation between Givaudan and LyondellBasell is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Givaudan SA and LyondellBasell Industries NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LyondellBasell Industries 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 LyondellBasell Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LyondellBasell Industries has no effect on the direction of Givaudan i.e., Givaudan and LyondellBasell Industries go up and down completely randomly.

Pair Corralation between Givaudan and LyondellBasell Industries

Assuming the 90 days horizon Givaudan SA is expected to generate 2.4 times more return on investment than LyondellBasell Industries. However, Givaudan is 2.4 times more volatile than LyondellBasell Industries NV. It trades about 0.04 of its potential returns per unit of risk. LyondellBasell Industries NV is currently generating about 0.02 per unit of risk. If you would invest  318,200  in Givaudan SA on September 5, 2024 and sell it today you would earn a total of  114,468  from holding Givaudan SA or generate 35.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	75.96%
Values	Daily Returns

Givaudan SA  vs.  LyondellBasell Industries NV

Givaudan SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Givaudan SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

LyondellBasell Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LyondellBasell Industries NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Givaudan and LyondellBasell Industries

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

The idea behind Givaudan SA and LyondellBasell Industries NV 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.