Correlation Between Ecolab and Air Liquide

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

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

Diversification Opportunities for Ecolab and Air Liquide

-0.22

Correlation Coefficient

Ecolab  Air Liquide

Very good diversification

The 3 months correlation between Ecolab and Air is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Air Liquide SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Liquide SA and Ecolab 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 Ecolab Inc are associated (or correlated) with Air Liquide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Liquide SA has no effect on the direction of Ecolab i.e., Ecolab and Air Liquide go up and down completely randomly.

Pair Corralation between Ecolab and Air Liquide

Assuming the 90 days horizon Ecolab Inc is expected to generate 1.2 times more return on investment than Air Liquide. However, Ecolab is 1.2 times more volatile than Air Liquide SA. It trades about 0.09 of its potential returns per unit of risk. Air Liquide SA is currently generating about 0.05 per unit of risk. If you would invest  13,430  in Ecolab Inc on September 23, 2024 and sell it today you would earn a total of  9,600  from holding Ecolab Inc or generate 71.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Ecolab Inc  vs.  Air Liquide SA

Ecolab Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ecolab Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Ecolab is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 fragile performance, the Stock's essential indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Ecolab and Air Liquide

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

The idea behind Ecolab Inc and Air Liquide SA 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.