Correlation Between Sika AG and Lanxess AG
Can any of the company-specific risk be diversified away by investing in both Sika AG and Lanxess AG 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 Sika AG and Lanxess AG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sika AG ADR and Lanxess AG, you can compare the effects of market volatilities on Sika AG and Lanxess AG 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 Sika AG with a short position of Lanxess AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sika AG and Lanxess AG.
Diversification Opportunities for Sika AG and Lanxess AG
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Sika and Lanxess is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Sika AG ADR and Lanxess AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lanxess AG and Sika AG 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 Sika AG ADR are associated (or correlated) with Lanxess AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lanxess AG has no effect on the direction of Sika AG i.e., Sika AG and Lanxess AG go up and down completely randomly.
Pair Corralation between Sika AG and Lanxess AG
Assuming the 90 days horizon Sika AG ADR is expected to under-perform the Lanxess AG. But the pink sheet apears to be less risky and, when comparing its historical volatility, Sika AG ADR is 1.02 times less risky than Lanxess AG. The pink sheet trades about -0.31 of its potential returns per unit of risk. The Lanxess AG is currently generating about -0.26 of returns per unit of risk over similar time horizon. If you would invest 3,060 in Lanxess AG on August 31, 2024 and sell it today you would lose (210.00) from holding Lanxess AG or give up 6.86% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sika AG ADR vs. Lanxess AG
Performance |
| Timeline |
| Sika AG ADR |
| Lanxess AG |
Sika AG and Lanxess AG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sika AG and Lanxess AG
The main advantage of trading using opposite Sika AG and Lanxess AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sika AG position performs unexpectedly, Lanxess AG 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 Lanxess AG will offset losses from the drop in Lanxess AG's long position.The idea behind Sika AG ADR and Lanxess AG 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.| Lanxess AG vs. Air Products and | Lanxess AG vs. Linde plc Ordinary | Lanxess AG vs. Sherwin Williams Co | Lanxess AG vs. PPG Industries |
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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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