Correlation Between InterContinental and Air Products

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

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

Diversification Opportunities for InterContinental and Air Products

-0.33

Correlation Coefficient

InterContinental  Air Products

Very good diversification

The 3 months correlation between InterContinental and Air is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group 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 InterContinental 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 InterContinental Hotels Group 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 InterContinental i.e., InterContinental and Air Products go up and down completely randomly.

Pair Corralation between InterContinental and Air Products

Assuming the 90 days trading horizon InterContinental Hotels Group is expected to generate 0.72 times more return on investment than Air Products. However, InterContinental Hotels Group is 1.39 times less risky than Air Products. It trades about 0.17 of its potential returns per unit of risk. Air Products Chemicals is currently generating about 0.12 per unit of risk. If you would invest  813,578  in InterContinental Hotels Group on October 20, 2024 and sell it today you would earn a total of  222,922  from holding InterContinental Hotels Group or generate 27.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

InterContinental Hotels Group  vs.  Air Products Chemicals

InterContinental Hotels

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, InterContinental exhibited solid returns over the last few months and may actually be approaching a breakup point.

Air Products Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air Products Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Air Products is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with InterContinental and Air Products

The main advantage of trading using opposite InterContinental and Air Products positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InterContinental 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 InterContinental Hotels Group 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.