Correlation Between Air Products and South32
Can any of the company-specific risk be diversified away by investing in both Air Products and South32 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 South32 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 South32, you can compare the effects of market volatilities on Air Products and South32 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 South32. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Products and South32.
Diversification Opportunities for Air Products and South32
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Air and South32 is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Air Products Chemicals and South32 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South32 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 South32. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South32 has no effect on the direction of Air Products i.e., Air Products and South32 go up and down completely randomly.
Pair Corralation between Air Products and South32
Assuming the 90 days trading horizon Air Products is expected to generate 1.07 times less return on investment than South32. In addition to that, Air Products is 1.38 times more volatile than South32. It trades about 0.22 of its total potential returns per unit of risk. South32 is currently generating about 0.33 per unit of volatility. If you would invest 16,930 in South32 on October 25, 2024 and sell it today you would earn a total of 1,320 from holding South32 or generate 7.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Air Products Chemicals vs. South32
Performance |
| Timeline |
| Air Products Chemicals |
| South32 |
Air Products and South32 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air Products and South32
The main advantage of trading using opposite Air Products and South32 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Products position performs unexpectedly, South32 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 South32 will offset losses from the drop in South32's long position.| Air Products vs. Flutter Entertainment PLC | Air Products vs. Ubisoft Entertainment | Air Products vs. Grand Vision Media | Air Products vs. GlobalData PLC |
| South32 vs. SMA Solar Technology | South32 vs. Air Products Chemicals | South32 vs. Zoom Video Communications | South32 vs. Evolution Gaming Group |
Check out your portfolio center.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 Transaction History module to view history of all your transactions and understand their impact on performance.
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