Correlation Between Ecolab and Boyd Gaming

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

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

Diversification Opportunities for Ecolab and Boyd Gaming

0.26

Correlation Coefficient

Ecolab  Boyd Gaming

Modest diversification

The 3 months correlation between Ecolab and Boyd is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Boyd Gaming in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boyd Gaming 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 Boyd Gaming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boyd Gaming has no effect on the direction of Ecolab i.e., Ecolab and Boyd Gaming go up and down completely randomly.

Pair Corralation between Ecolab and Boyd Gaming

Considering the 90-day investment horizon Ecolab Inc is expected to generate 0.85 times more return on investment than Boyd Gaming. However, Ecolab Inc is 1.18 times less risky than Boyd Gaming. It trades about 0.1 of its potential returns per unit of risk. Boyd Gaming is currently generating about -0.04 per unit of risk. If you would invest  23,553  in Ecolab Inc on December 19, 2024 and sell it today you would earn a total of  1,817  from holding Ecolab Inc or generate 7.71% return on investment over 90 days.

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

Ecolab Inc  vs.  Boyd Gaming

Ecolab Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ecolab Inc are ranked lower than 8 (%) 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.

Boyd Gaming

Risk-Adjusted Performance

Very Weak

Over the last 90 days Boyd Gaming has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Boyd Gaming is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ecolab and Boyd Gaming

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

The idea behind Ecolab Inc and Boyd Gaming 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.