Correlation Between Empire State and Ecolab

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

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

Diversification Opportunities for Empire State and Ecolab

0.65

Correlation Coefficient

Empire State  Ecolab

Poor diversification

The 3 months correlation between Empire and Ecolab is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and Empire State 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 Empire State Realty 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 Empire State i.e., Empire State and Ecolab go up and down completely randomly.

Pair Corralation between Empire State and Ecolab

Given the investment horizon of 90 days Empire State Realty is expected to generate 2.46 times more return on investment than Ecolab. However, Empire State is 2.46 times more volatile than Ecolab Inc. It trades about -0.02 of its potential returns per unit of risk. Ecolab Inc is currently generating about -0.11 per unit of risk. If you would invest  1,066  in Empire State Realty on October 7, 2024 and sell it today you would lose (49.00) from holding Empire State Realty or give up 4.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	92.06%
Values	Daily Returns

Empire State Realty  vs.  Ecolab Inc

Empire State Realty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Empire State Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Empire State is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the 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 unfluctuating 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 Empire State and Ecolab

The main advantage of trading using opposite Empire State and Ecolab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Empire State 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 Empire State Realty 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.