Correlation Between North American and AIR PRODCHEMICALS

Can any of the company-specific risk be diversified away by investing in both North American and AIR PRODCHEMICALS 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 PRODCHEMICALS 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 PRODCHEMICALS, you can compare the effects of market volatilities on North American and AIR PRODCHEMICALS 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 PRODCHEMICALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and AIR PRODCHEMICALS.

Diversification Opportunities for North American and AIR PRODCHEMICALS

0.33

Correlation Coefficient

North American  AIR PRODCHEMICALS

Weak diversification

The 3 months correlation between North and AIR is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and AIR PRODCHEMICALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIR PRODCHEMICALS 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 PRODCHEMICALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIR PRODCHEMICALS has no effect on the direction of North American i.e., North American and AIR PRODCHEMICALS go up and down completely randomly.

Pair Corralation between North American and AIR PRODCHEMICALS

Assuming the 90 days horizon North American is expected to generate 1.69 times less return on investment than AIR PRODCHEMICALS. In addition to that, North American is 2.02 times more volatile than AIR PRODCHEMICALS. It trades about 0.14 of its total potential returns per unit of risk. AIR PRODCHEMICALS is currently generating about 0.49 per unit of volatility. If you would invest  28,460  in AIR PRODCHEMICALS on September 4, 2024 and sell it today you would earn a total of  3,170  from holding AIR PRODCHEMICALS or generate 11.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

North American Construction  vs.  AIR PRODCHEMICALS

North American Const

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, North American may actually be approaching a critical reversion point that can send shares even higher in January 2025.

AIR PRODCHEMICALS

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AIR PRODCHEMICALS are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, AIR PRODCHEMICALS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and AIR PRODCHEMICALS

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

The idea behind North American Construction and AIR PRODCHEMICALS 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.