Correlation Between Air Liquide and Novozymes

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

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

Diversification Opportunities for Air Liquide and Novozymes

0.95

Correlation Coefficient

Air Liquide  Novozymes

Almost no diversification

The 3 months correlation between Air and Novozymes is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Air Liquide SA and Novozymes AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novozymes AS and Air Liquide 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 Liquide SA are associated (or correlated) with Novozymes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novozymes AS has no effect on the direction of Air Liquide i.e., Air Liquide and Novozymes go up and down completely randomly.

Pair Corralation between Air Liquide and Novozymes

Assuming the 90 days horizon Air Liquide SA is expected to generate 0.79 times more return on investment than Novozymes. However, Air Liquide SA is 1.27 times less risky than Novozymes. It trades about -0.15 of its potential returns per unit of risk. Novozymes AS is currently generating about -0.16 per unit of risk. If you would invest  3,765  in Air Liquide SA on September 13, 2024 and sell it today you would lose (409.00) from holding Air Liquide SA or give up 10.86% of portfolio value over 90 days.

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

Air Liquide SA  vs.  Novozymes AS

Air Liquide SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air Liquide SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Novozymes AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novozymes AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's primary indicators remain fairly 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 Air Liquide and Novozymes

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

The idea behind Air Liquide SA and Novozymes AS 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.