Correlation Between North American and AIR LIQUIDE

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

By analyzing existing cross correlation between North American Construction and AIR LIQUIDE ADR, you can compare the effects of market volatilities on North American and AIR LIQUIDE 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 North American with a short position of AIR LIQUIDE. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and AIR LIQUIDE.

Diversification Opportunities for North American and AIR LIQUIDE

-0.83

Correlation Coefficient

North American  AIR LIQUIDE

Pay attention - limited upside

The 3 months correlation between North and AIR is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and AIR LIQUIDE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIR LIQUIDE ADR and North American 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 North American Construction are associated (or correlated) with AIR LIQUIDE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIR LIQUIDE ADR has no effect on the direction of North American i.e., North American and AIR LIQUIDE go up and down completely randomly.

Pair Corralation between North American and AIR LIQUIDE

Assuming the 90 days horizon North American Construction is expected to generate 2.76 times more return on investment than AIR LIQUIDE. However, North American is 2.76 times more volatile than AIR LIQUIDE ADR. It trades about 0.16 of its potential returns per unit of risk. AIR LIQUIDE ADR is currently generating about -0.07 per unit of risk. If you would invest  1,790  in North American Construction on September 29, 2024 and sell it today you would earn a total of  140.00  from holding North American Construction or generate 7.82% return on investment over 90 days.

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

North American Construction  vs.  AIR LIQUIDE ADR

North American Const

Risk-Adjusted Performance

8 of 100

OK

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

AIR LIQUIDE ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with North American and AIR LIQUIDE

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

The idea behind North American Construction and AIR LIQUIDE ADR 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.