Correlation Between Air Products and Baltic Panamax

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

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

Diversification Opportunities for Air Products and Baltic Panamax

-0.52

Correlation Coefficient

Air Products  Baltic Panamax

Excellent diversification

The 3 months correlation between Air and Baltic is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Air Products Chemicals and Baltic Panamax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baltic Panamax and Air Products 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 Air Products Chemicals are associated (or correlated) with Baltic Panamax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baltic Panamax has no effect on the direction of Air Products i.e., Air Products and Baltic Panamax go up and down completely randomly.

Pair Corralation between Air Products and Baltic Panamax

Assuming the 90 days trading horizon Air Products Chemicals is expected to generate 0.9 times more return on investment than Baltic Panamax. However, Air Products Chemicals is 1.11 times less risky than Baltic Panamax. It trades about 0.06 of its potential returns per unit of risk. Baltic Panamax is currently generating about -0.31 per unit of risk. If you would invest  28,914  in Air Products Chemicals on September 19, 2024 and sell it today you would earn a total of  1,618  from holding Air Products Chemicals or generate 5.6% return on investment over 90 days.

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

Air Products Chemicals  vs.  Baltic Panamax

Pair Trading with Air Products and Baltic Panamax

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

The idea behind Air Products Chemicals and Baltic Panamax 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..