Correlation Between Ecolab and Tyson Foods

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

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

Diversification Opportunities for Ecolab and Tyson Foods

-0.51

Correlation Coefficient

Ecolab  Tyson Foods

Excellent diversification

The 3 months correlation between Ecolab and Tyson is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Tyson Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tyson Foods 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 Tyson Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tyson Foods has no effect on the direction of Ecolab i.e., Ecolab and Tyson Foods go up and down completely randomly.

Pair Corralation between Ecolab and Tyson Foods

Considering the 90-day investment horizon Ecolab Inc is expected to generate 0.8 times more return on investment than Tyson Foods. However, Ecolab Inc is 1.25 times less risky than Tyson Foods. It trades about 0.1 of its potential returns per unit of risk. Tyson Foods is currently generating about 0.01 per unit of risk. If you would invest  14,266  in Ecolab Inc on September 17, 2024 and sell it today you would earn a total of  10,754  from holding Ecolab Inc or generate 75.38% 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.  Tyson Foods

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

Tyson Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tyson Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Tyson Foods is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ecolab and Tyson Foods

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

The idea behind Ecolab Inc and Tyson Foods 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.