Correlation Between Lanxess AG and International Flavors

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

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

Diversification Opportunities for Lanxess AG and International Flavors

0.58

Correlation Coefficient

Lanxess AG  International Flavors

Very weak diversification

The 3 months correlation between Lanxess and International is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Lanxess AG and International Flavors Fragranc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Flavors and Lanxess AG 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 Lanxess AG are associated (or correlated) with International Flavors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Flavors has no effect on the direction of Lanxess AG i.e., Lanxess AG and International Flavors go up and down completely randomly.

Pair Corralation between Lanxess AG and International Flavors

Assuming the 90 days horizon Lanxess AG is expected to under-perform the International Flavors. In addition to that, Lanxess AG is 3.88 times more volatile than International Flavors Fragrances. It trades about -0.28 of its total potential returns per unit of risk. International Flavors Fragrances is currently generating about -0.46 per unit of volatility. If you would invest  8,859  in International Flavors Fragrances on October 6, 2024 and sell it today you would lose (550.00) from holding International Flavors Fragrances or give up 6.21% of portfolio value over 90 days.

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

Lanxess AG  vs.  International Flavors Fragranc

Lanxess AG

Risk-Adjusted Performance

0 of 100

Very Weak

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

International Flavors

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Lanxess AG and International Flavors

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

The idea behind Lanxess AG and International Flavors Fragrances 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.