Correlation Between Danone SA and Air Liquide

Can any of the company-specific risk be diversified away by investing in both Danone SA 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 Danone SA and Air Liquide into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Danone SA and Air Liquide SA, you can compare the effects of market volatilities on Danone SA 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 Danone SA with a short position of Air Liquide. Check out your portfolio center. Please also check ongoing floating volatility patterns of Danone SA and Air Liquide.

Diversification Opportunities for Danone SA and Air Liquide

-0.59

Correlation Coefficient

Danone SA  Air Liquide

Excellent diversification

The 3 months correlation between Danone and Air is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Danone SA and Air Liquide SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Liquide SA and Danone SA 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 Danone SA 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 SA has no effect on the direction of Danone SA i.e., Danone SA and Air Liquide go up and down completely randomly.

Pair Corralation between Danone SA and Air Liquide

Assuming the 90 days horizon Danone SA is expected to generate 2.62 times less return on investment than Air Liquide. But when comparing it to its historical volatility, Danone SA is 1.31 times less risky than Air Liquide. It trades about 0.02 of its potential returns per unit of risk. Air Liquide SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  14,262  in Air Liquide SA on February 3, 2024 and sell it today you would earn a total of  3,844  from holding Air Liquide SA or generate 26.95% return on investment over 90 days.

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

Danone SA  vs.  Air Liquide SA

Danone SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Danone SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Danone SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Air Liquide SA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air Liquide SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Air Liquide may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Danone SA and Air Liquide

The main advantage of trading using opposite Danone SA and Air Liquide positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Danone SA 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 Danone SA and Air Liquide SA 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 Stocks Directory module to find actively traded stocks across global markets.