Correlation Between Ecolab and Pentair PLC

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

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

Diversification Opportunities for Ecolab and Pentair PLC

-0.48

Correlation Coefficient

Ecolab  Pentair PLC

Very good diversification

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

Pair Corralation between Ecolab and Pentair PLC

Considering the 90-day investment horizon Ecolab Inc is expected to under-perform the Pentair PLC. But the stock apears to be less risky and, when comparing its historical volatility, Ecolab Inc is 1.04 times less risky than Pentair PLC. The stock trades about -0.02 of its potential returns per unit of risk. The Pentair PLC is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  9,273  in Pentair PLC on September 14, 2024 and sell it today you would earn a total of  1,556  from holding Pentair PLC or generate 16.78% 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.  Pentair PLC

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.

Pentair PLC

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Pentair PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecolab and Pentair PLC

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

The idea behind Ecolab Inc and Pentair PLC 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..