Correlation Between Dow and AIR LIQUIDE
Can any of the company-specific risk be diversified away by investing in both Dow 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 Dow and AIR LIQUIDE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Inc and AIR LIQUIDE ADR, you can compare the effects of market volatilities on Dow 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 Dow with a short position of AIR LIQUIDE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow and AIR LIQUIDE.
Diversification Opportunities for Dow and AIR LIQUIDE
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and AIR is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc 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 Dow 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 Dow Inc 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 Dow i.e., Dow and AIR LIQUIDE go up and down completely randomly.
Pair Corralation between Dow and AIR LIQUIDE
Assuming the 90 days horizon Dow Inc is expected to under-perform the AIR LIQUIDE. But the stock apears to be less risky and, when comparing its historical volatility, Dow Inc is 1.3 times less risky than AIR LIQUIDE. The stock trades about -0.02 of its potential returns per unit of risk. The AIR LIQUIDE ADR is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 2,518 in AIR LIQUIDE ADR on October 20, 2024 and sell it today you would earn a total of 762.00 from holding AIR LIQUIDE ADR or generate 30.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Inc vs. AIR LIQUIDE ADR
Performance |
| Timeline |
| Dow Inc |
| AIR LIQUIDE ADR |
Dow and AIR LIQUIDE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dow and AIR LIQUIDE
The main advantage of trading using opposite Dow and AIR LIQUIDE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow 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 Dow Inc 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.| AIR LIQUIDE vs. CHRYSALIS INVESTMENTS LTD | AIR LIQUIDE vs. FIRST SAVINGS FINL | AIR LIQUIDE vs. CAIRN HOMES EO | AIR LIQUIDE vs. The Home Depot |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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