Correlation Between Givaudan and Sika AG

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

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

Diversification Opportunities for Givaudan and Sika AG

0.86

Correlation Coefficient

Givaudan  Sika AG

Very poor diversification

The 3 months correlation between Givaudan and Sika is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Givaudan SA and Sika AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sika AG and Givaudan 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 Givaudan SA are associated (or correlated) with Sika AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sika AG has no effect on the direction of Givaudan i.e., Givaudan and Sika AG go up and down completely randomly.

Pair Corralation between Givaudan and Sika AG

Assuming the 90 days trading horizon Givaudan is expected to generate 1.81 times less return on investment than Sika AG. But when comparing it to its historical volatility, Givaudan SA is 1.08 times less risky than Sika AG. It trades about 0.26 of its potential returns per unit of risk. Sika AG is currently generating about 0.43 of returns per unit of risk over similar time horizon. If you would invest  25,770  in Sika AG on February 23, 2024 and sell it today you would earn a total of  2,380  from holding Sika AG or generate 9.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Givaudan SA  vs.  Sika AG

Givaudan SA

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Givaudan SA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Givaudan may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Sika AG

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sika AG are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sika AG may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Givaudan and Sika AG

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

The idea behind Givaudan SA and Sika 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..