Correlation Between Ecolab and PPG Industries

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

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

Diversification Opportunities for Ecolab and PPG Industries

0.7

Correlation Coefficient

Ecolab  PPG Industries

Poor diversification

The 3 months correlation between Ecolab and PPG is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and PPG Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PPG Industries 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 PPG Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PPG Industries has no effect on the direction of Ecolab i.e., Ecolab and PPG Industries go up and down completely randomly.

Pair Corralation between Ecolab and PPG Industries

Considering the 90-day investment horizon Ecolab Inc is expected to generate 0.62 times more return on investment than PPG Industries. However, Ecolab Inc is 1.6 times less risky than PPG Industries. It trades about 0.08 of its potential returns per unit of risk. PPG Industries is currently generating about 0.02 per unit of risk. If you would invest  24,573  in Ecolab Inc on September 1, 2024 and sell it today you would earn a total of  304.00  from holding Ecolab Inc or generate 1.24% return on investment over 90 days.

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

Ecolab Inc  vs.  PPG Industries

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.

PPG Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ecolab and PPG Industries

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

The idea behind Ecolab Inc and PPG Industries 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.