Correlation Between Estee Lauder and Ecolab

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

By analyzing existing cross correlation between Estee Lauder Companies and Ecolab Inc, you can compare the effects of market volatilities on Estee Lauder and Ecolab 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 Estee Lauder with a short position of Ecolab. Check out your portfolio center. Please also check ongoing floating volatility patterns of Estee Lauder and Ecolab.

Diversification Opportunities for Estee Lauder and Ecolab

0.68

Correlation Coefficient

Estee Lauder  Ecolab

Poor diversification

The 3 months correlation between Estee and Ecolab is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and Estee Lauder 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 Estee Lauder Companies are associated (or correlated) with Ecolab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecolab Inc has no effect on the direction of Estee Lauder i.e., Estee Lauder and Ecolab go up and down completely randomly.

Pair Corralation between Estee Lauder and Ecolab

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to under-perform the Ecolab. In addition to that, Estee Lauder is 2.16 times more volatile than Ecolab Inc. It trades about -0.08 of its total potential returns per unit of risk. Ecolab Inc is currently generating about 0.08 per unit of volatility. If you would invest  14,696  in Ecolab Inc on September 29, 2024 and sell it today you would earn a total of  9,080  from holding Ecolab Inc or generate 61.79% return on investment over 90 days.

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

Estee Lauder Companies  vs.  Ecolab Inc

Estee Lauder Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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 latest unsteady performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Estee Lauder and Ecolab

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

The idea behind Estee Lauder Companies and Ecolab Inc 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 Stocks Directory module to find actively traded stocks across global markets.