Correlation Between Ecolab and Kronos Worldwide

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

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

Diversification Opportunities for Ecolab and Kronos Worldwide

0.42

Correlation Coefficient

Ecolab  Kronos Worldwide

Very weak diversification

The 3 months correlation between Ecolab and Kronos is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Kronos Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kronos Worldwide 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 Kronos Worldwide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kronos Worldwide has no effect on the direction of Ecolab i.e., Ecolab and Kronos Worldwide go up and down completely randomly.

Pair Corralation between Ecolab and Kronos Worldwide

Considering the 90-day investment horizon Ecolab is expected to generate 6.86 times less return on investment than Kronos Worldwide. But when comparing it to its historical volatility, Ecolab Inc is 2.44 times less risky than Kronos Worldwide. It trades about 0.01 of its potential returns per unit of risk. Kronos Worldwide is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,095  in Kronos Worldwide on September 3, 2024 and sell it today you would earn a total of  36.00  from holding Kronos Worldwide or generate 3.29% return on investment over 90 days.

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

Ecolab Inc  vs.  Kronos Worldwide

Ecolab Inc

Risk-Adjusted Performance

0 of 100

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

Kronos Worldwide

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kronos Worldwide are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Kronos Worldwide is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ecolab and Kronos Worldwide

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

The idea behind Ecolab Inc and Kronos Worldwide 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 Stocks Directory module to find actively traded stocks across global markets.