Correlation Between Afya and Ecolab

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

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

Diversification Opportunities for Afya and Ecolab

0.21

Correlation Coefficient

Afya  Ecolab

Modest diversification

The 3 months correlation between Afya and Ecolab is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Afya and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and Afya 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 Afya are associated (or correlated) with Ecolab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecolab Inc has no effect on the direction of Afya i.e., Afya and Ecolab go up and down completely randomly.

Pair Corralation between Afya and Ecolab

Given the investment horizon of 90 days Afya is expected to under-perform the Ecolab. In addition to that, Afya is 2.08 times more volatile than Ecolab Inc. It trades about -0.17 of its total potential returns per unit of risk. Ecolab Inc is currently generating about -0.12 per unit of volatility. If you would invest  24,466  in Ecolab Inc on September 23, 2024 and sell it today you would lose (637.00) from holding Ecolab Inc or give up 2.6% of portfolio value over 90 days.

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

Afya  vs.  Ecolab Inc

Afya

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ecolab Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ecolab Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Ecolab is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Afya and Ecolab

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

The idea behind Afya and Ecolab Inc 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.