Correlation Between International Flavors and LAir Liquide

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

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

Diversification Opportunities for International Flavors and LAir Liquide

-0.26

Correlation Coefficient

International Flavors  LAir Liquide

Very good diversification

The 3 months correlation between International and LAir is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding International Flavors Fragranc 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 International Flavors 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 International Flavors Fragrances 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 International Flavors i.e., International Flavors and LAir Liquide go up and down completely randomly.

Pair Corralation between International Flavors and LAir Liquide

Considering the 90-day investment horizon International Flavors Fragrances is expected to under-perform the LAir Liquide. But the stock apears to be less risky and, when comparing its historical volatility, International Flavors Fragrances is 1.29 times less risky than LAir Liquide. The stock trades about -0.15 of its potential returns per unit of risk. The LAir Liquide SA is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  16,467  in LAir Liquide SA on December 2, 2024 and sell it today you would earn a total of  1,836  from holding LAir Liquide SA or generate 11.15% return on investment over 90 days.

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

International Flavors Fragranc  vs.  LAir Liquide SA

International Flavors

Risk-Adjusted Performance

Very Weak

Over the last 90 days International Flavors Fragrances has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

LAir Liquide SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LAir Liquide SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, LAir Liquide may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with International Flavors and LAir Liquide

The main advantage of trading using opposite International Flavors and LAir Liquide positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Flavors 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 International Flavors Fragrances 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.