Correlation Between Ecolab and Quaker Chemical

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

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

Diversification Opportunities for Ecolab and Quaker Chemical

-0.09

Correlation Coefficient

Ecolab  Quaker Chemical

Good diversification

The 3 months correlation between Ecolab and Quaker is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Quaker Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quaker Chemical 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 Quaker Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quaker Chemical has no effect on the direction of Ecolab i.e., Ecolab and Quaker Chemical go up and down completely randomly.

Pair Corralation between Ecolab and Quaker Chemical

Assuming the 90 days horizon Ecolab Inc is expected to generate 0.48 times more return on investment than Quaker Chemical. However, Ecolab Inc is 2.07 times less risky than Quaker Chemical. It trades about 0.0 of its potential returns per unit of risk. Quaker Chemical is currently generating about -0.05 per unit of risk. If you would invest  22,768  in Ecolab Inc on September 26, 2024 and sell it today you would lose (88.00) from holding Ecolab Inc or give up 0.39% of portfolio value over 90 days.

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

Ecolab Inc  vs.  Quaker Chemical

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 nearly stable basic indicators, Ecolab is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Quaker Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quaker Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Ecolab and Quaker Chemical

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

The idea behind Ecolab Inc and Quaker Chemical 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..