Correlation Between IsraelLtd and Ecolab

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

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

Diversification Opportunities for IsraelLtd and Ecolab

-0.1

Correlation Coefficient

IsraelLtd  Ecolab

Good diversification

The 3 months correlation between IsraelLtd and Ecolab is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Israel and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and IsraelLtd 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 Israel 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 IsraelLtd i.e., IsraelLtd and Ecolab go up and down completely randomly.

Pair Corralation between IsraelLtd and Ecolab

Assuming the 90 days horizon Israel is expected to generate 10.3 times more return on investment than Ecolab. However, IsraelLtd is 10.3 times more volatile than Ecolab Inc. It trades about 0.08 of its potential returns per unit of risk. Ecolab Inc is currently generating about 0.11 per unit of risk. If you would invest  24,700  in Israel on December 29, 2024 and sell it today you would earn a total of  3,800  from holding Israel or generate 15.38% return on investment over 90 days.

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

Israel  vs.  Ecolab Inc

IsraelLtd

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Israel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, IsraelLtd reported solid returns over the last few months and may actually be approaching a breakup point.

Ecolab Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ecolab Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental indicators, Ecolab may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IsraelLtd and Ecolab

The main advantage of trading using opposite IsraelLtd and Ecolab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IsraelLtd 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 Israel 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.

Check out your portfolio center.

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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.