Correlation Between Cabot and Ecolab

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

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

Diversification Opportunities for Cabot and Ecolab

-0.65

Correlation Coefficient

Cabot  Ecolab

Excellent diversification

The 3 months correlation between Cabot and Ecolab is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Cabot and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and Cabot 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 Cabot 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 Cabot i.e., Cabot and Ecolab go up and down completely randomly.

Pair Corralation between Cabot and Ecolab

Considering the 90-day investment horizon Cabot is expected to under-perform the Ecolab. In addition to that, Cabot is 1.29 times more volatile than Ecolab Inc. It trades about -0.08 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  23,715  in Ecolab Inc on December 27, 2024 and sell it today you would earn a total of  1,524  from holding Ecolab Inc or generate 6.43% return on investment over 90 days.

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

Cabot  vs.  Ecolab Inc

Cabot

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cabot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Ecolab Inc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ecolab Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental indicators, Ecolab may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Cabot and Ecolab

The main advantage of trading using opposite Cabot and Ecolab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cabot 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 Cabot 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.