Correlation Between Ecolab and Visteon Corp

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

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

Diversification Opportunities for Ecolab and Visteon Corp

0.06

Correlation Coefficient

Ecolab  Visteon Corp

Significant diversification

The 3 months correlation between Ecolab and Visteon is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Visteon Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visteon Corp 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 Visteon Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visteon Corp has no effect on the direction of Ecolab i.e., Ecolab and Visteon Corp go up and down completely randomly.

Pair Corralation between Ecolab and Visteon Corp

Considering the 90-day investment horizon Ecolab Inc is expected to generate 0.32 times more return on investment than Visteon Corp. However, Ecolab Inc is 3.15 times less risky than Visteon Corp. It trades about 0.08 of its potential returns per unit of risk. Visteon Corp is currently generating about 0.02 per unit of risk. If you would invest  24,597  in Ecolab Inc on September 18, 2024 and sell it today you would earn a total of  243.00  from holding Ecolab Inc or generate 0.99% return on investment over 90 days.

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

Ecolab Inc  vs.  Visteon Corp

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.

Visteon Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Visteon Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Visteon Corp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ecolab and Visteon Corp

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

The idea behind Ecolab Inc and Visteon Corp 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.