Correlation Between Air Products and Herc Holdings

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

By analyzing existing cross correlation between Air Products and and Herc Holdings, you can compare the effects of market volatilities on Air Products and Herc Holdings 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 Herc Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Products and Herc Holdings.

Diversification Opportunities for Air Products and Herc Holdings

0.62

Correlation Coefficient

Air Products  Herc Holdings

Poor diversification

The 3 months correlation between Air and Herc is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Air Products and and Herc Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Herc Holdings 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 and are associated (or correlated) with Herc Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Herc Holdings has no effect on the direction of Air Products i.e., Air Products and Herc Holdings go up and down completely randomly.

Pair Corralation between Air Products and Herc Holdings

Considering the 90-day investment horizon Air Products is expected to generate 20.09 times less return on investment than Herc Holdings. But when comparing it to its historical volatility, Air Products and is 2.07 times less risky than Herc Holdings. It trades about 0.01 of its potential returns per unit of risk. Herc Holdings is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  15,657  in Herc Holdings on September 25, 2024 and sell it today you would earn a total of  3,269  from holding Herc Holdings or generate 20.88% return on investment over 90 days.

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

Air Products and  vs.  Herc Holdings

Air Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air Products and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Air Products is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Herc Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Herc Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Herc Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Products and Herc Holdings

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

The idea behind Air Products and and Herc Holdings 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.