Correlation Between DL Industries and LAir Liquide

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

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

Diversification Opportunities for DL Industries and LAir Liquide

-0.03

Correlation Coefficient

DL Industries  LAir Liquide

Good diversification

The 3 months correlation between DLNDY and LAir is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding DL Industries ADR and LAir Liquide SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAir Liquide SA and DL Industries 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 DL Industries ADR are associated (or correlated) with LAir Liquide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LAir Liquide SA has no effect on the direction of DL Industries i.e., DL Industries and LAir Liquide go up and down completely randomly.

Pair Corralation between DL Industries and LAir Liquide

Assuming the 90 days horizon DL Industries ADR is expected to generate 2.69 times more return on investment than LAir Liquide. However, DL Industries is 2.69 times more volatile than LAir Liquide SA. It trades about -0.08 of its potential returns per unit of risk. LAir Liquide SA is currently generating about -0.3 per unit of risk. If you would invest  275.00  in DL Industries ADR on January 20, 2024 and sell it today you would lose (13.00) from holding DL Industries ADR or give up 4.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

DL Industries ADR  vs.  LAir Liquide SA

DL Industries ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DL Industries ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

LAir Liquide SA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LAir Liquide SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, LAir Liquide may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with DL Industries and LAir Liquide

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

The idea behind DL Industries ADR and LAir 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.