Correlation Between Biglari Holdings and Ecolab

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

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

Diversification Opportunities for Biglari Holdings and Ecolab

-0.7

Correlation Coefficient

Biglari Holdings  Ecolab

Excellent diversification

The 3 months correlation between Biglari and Ecolab is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Biglari Holdings and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and Biglari Holdings 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 Biglari Holdings 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 Biglari Holdings i.e., Biglari Holdings and Ecolab go up and down completely randomly.

Pair Corralation between Biglari Holdings and Ecolab

Allowing for the 90-day total investment horizon Biglari Holdings is expected to generate 3.27 times more return on investment than Ecolab. However, Biglari Holdings is 3.27 times more volatile than Ecolab Inc. It trades about 0.38 of its potential returns per unit of risk. Ecolab Inc is currently generating about -0.14 per unit of risk. If you would invest  20,698  in Biglari Holdings on September 26, 2024 and sell it today you would earn a total of  5,757  from holding Biglari Holdings or generate 27.81% return on investment over 90 days.

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

Biglari Holdings  vs.  Ecolab Inc

Biglari Holdings

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Biglari Holdings are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, Biglari Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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

Pair Trading with Biglari Holdings and Ecolab

The main advantage of trading using opposite Biglari Holdings and Ecolab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Biglari Holdings 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 Biglari Holdings 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.