Correlation Between Air Liquide and Ecolab

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

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

Diversification Opportunities for Air Liquide and Ecolab

0.62

Correlation Coefficient

Air Liquide  Ecolab

Poor diversification

The 3 months correlation between Air and Ecolab is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Air Liquide SA and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and Air Liquide 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 Air Liquide SA 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 Air Liquide i.e., Air Liquide and Ecolab go up and down completely randomly.

Pair Corralation between Air Liquide and Ecolab

Assuming the 90 days horizon Air Liquide is expected to generate 2.59 times less return on investment than Ecolab. In addition to that, Air Liquide is 1.11 times more volatile than Ecolab Inc. It trades about 0.03 of its total potential returns per unit of risk. Ecolab Inc is currently generating about 0.09 per unit of volatility. If you would invest  14,924  in Ecolab Inc on September 3, 2024 and sell it today you would earn a total of  9,953  from holding Ecolab Inc or generate 66.69% return on investment over 90 days.

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

Air Liquide SA  vs.  Ecolab Inc

Air Liquide SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ecolab Inc

Risk-Adjusted Performance

0 of 100

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 recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Air Liquide and Ecolab

The main advantage of trading using opposite Air Liquide and Ecolab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Liquide 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 Air Liquide SA 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.