Correlation Between Ecolab and Magna International

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

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

Diversification Opportunities for Ecolab and Magna International

-0.45

Correlation Coefficient

Ecolab  Magna International

Very good diversification

The 3 months correlation between Ecolab and Magna is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Magna International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna International 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 Magna International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magna International has no effect on the direction of Ecolab i.e., Ecolab and Magna International go up and down completely randomly.

Pair Corralation between Ecolab and Magna International

Considering the 90-day investment horizon Ecolab is expected to generate 46.89 times less return on investment than Magna International. But when comparing it to its historical volatility, Ecolab Inc is 2.51 times less risky than Magna International. It trades about 0.0 of its potential returns per unit of risk. Magna International is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,086  in Magna International on September 18, 2024 and sell it today you would earn a total of  289.00  from holding Magna International or generate 7.07% return on investment over 90 days.

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

Ecolab Inc  vs.  Magna International

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.

Magna International

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Magna International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile technical and fundamental indicators, Magna International may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ecolab and Magna International

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

The idea behind Ecolab Inc and Magna International 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.