Correlation Between Ecolab and Sealed Air

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

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

Diversification Opportunities for Ecolab and Sealed Air

0.23

Correlation Coefficient

Ecolab  Sealed Air

Modest diversification

The 3 months correlation between Ecolab and Sealed is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Sealed Air in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sealed Air 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 Sealed Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sealed Air has no effect on the direction of Ecolab i.e., Ecolab and Sealed Air go up and down completely randomly.

Pair Corralation between Ecolab and Sealed Air

Considering the 90-day investment horizon Ecolab Inc is expected to under-perform the Sealed Air. But the stock apears to be less risky and, when comparing its historical volatility, Ecolab Inc is 1.72 times less risky than Sealed Air. The stock trades about -0.03 of its potential returns per unit of risk. The Sealed Air is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,474  in Sealed Air on August 30, 2024 and sell it today you would earn a total of  150.00  from holding Sealed Air or generate 4.32% return on investment over 90 days.

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

Ecolab Inc  vs.  Sealed Air

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

Sealed Air

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sealed Air are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Sealed Air is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ecolab and Sealed Air

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

The idea behind Ecolab Inc and Sealed Air 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.