Correlation Between Ecolab and Lanxess AG

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

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

Diversification Opportunities for Ecolab and Lanxess AG

0.78

Correlation Coefficient

Ecolab  Lanxess AG

Poor diversification

The 3 months correlation between Ecolab and Lanxess is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Lanxess AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lanxess AG 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 Lanxess AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lanxess AG has no effect on the direction of Ecolab i.e., Ecolab and Lanxess AG go up and down completely randomly.

Pair Corralation between Ecolab and Lanxess AG

Considering the 90-day investment horizon Ecolab Inc is expected to generate 0.44 times more return on investment than Lanxess AG. However, Ecolab Inc is 2.27 times less risky than Lanxess AG. It trades about 0.08 of its potential returns per unit of risk. Lanxess AG is currently generating about -0.05 per unit of risk. If you would invest  15,005  in Ecolab Inc on October 3, 2024 and sell it today you would earn a total of  8,447  from holding Ecolab Inc or generate 56.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	78.79%
Values	Daily Returns

Ecolab Inc  vs.  Lanxess AG

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

Lanxess AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lanxess AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady 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 Lanxess AG

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

The idea behind Ecolab Inc and Lanxess AG 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.