Correlation Between Ecolab and Insteel Industries

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

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

Diversification Opportunities for Ecolab and Insteel Industries

-0.17

Correlation Coefficient

Ecolab  Insteel Industries

Good diversification

The 3 months correlation between Ecolab and Insteel is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries 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 Insteel Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insteel Industries has no effect on the direction of Ecolab i.e., Ecolab and Insteel Industries go up and down completely randomly.

Pair Corralation between Ecolab and Insteel Industries

Considering the 90-day investment horizon Ecolab Inc is expected to generate 0.39 times more return on investment than Insteel Industries. However, Ecolab Inc is 2.57 times less risky than Insteel Industries. It trades about -0.01 of its potential returns per unit of risk. Insteel Industries is currently generating about -0.05 per unit of risk. If you would invest  24,853  in Ecolab Inc on September 18, 2024 and sell it today you would lose (232.00) from holding Ecolab Inc or give up 0.93% 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.  Insteel Industries

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

Insteel Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Insteel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Ecolab and Insteel Industries

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

The idea behind Ecolab Inc and Insteel Industries 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.