Correlation Between Ecolab and Neo Performance

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

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

Diversification Opportunities for Ecolab and Neo Performance

0.48

Correlation Coefficient

Ecolab  Neo Performance

Very weak diversification

The 3 months correlation between Ecolab and Neo is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Neo Performance Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neo Performance Materials 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 Neo Performance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neo Performance Materials has no effect on the direction of Ecolab i.e., Ecolab and Neo Performance go up and down completely randomly.

Pair Corralation between Ecolab and Neo Performance

Considering the 90-day investment horizon Ecolab Inc is expected to generate 0.49 times more return on investment than Neo Performance. However, Ecolab Inc is 2.05 times less risky than Neo Performance. It trades about 0.01 of its potential returns per unit of risk. Neo Performance Materials is currently generating about -0.03 per unit of risk. If you would invest  24,737  in Ecolab Inc on September 3, 2024 and sell it today you would earn a total of  140.00  from holding Ecolab Inc or generate 0.57% 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.  Neo Performance Materials

Ecolab Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ecolab Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Neo Performance Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Neo Performance Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Neo Performance is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Ecolab and Neo Performance

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

The idea behind Ecolab Inc and Neo Performance Materials 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.