Correlation Between Magna International and Ecolab

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

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

Diversification Opportunities for Magna International and Ecolab

-0.45

Correlation Coefficient

Magna International  Ecolab

Very good diversification

The 3 months correlation between Magna and Ecolab is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and Magna International 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 Magna International 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 Magna International i.e., Magna International and Ecolab go up and down completely randomly.

Pair Corralation between Magna International and Ecolab

Considering the 90-day investment horizon Magna International is expected to under-perform the Ecolab. In addition to that, Magna International is 1.53 times more volatile than Ecolab Inc. It trades about -0.19 of its total potential returns per unit of risk. Ecolab Inc is currently generating about 0.29 per unit of volatility. If you would invest  23,138  in Ecolab Inc on December 5, 2024 and sell it today you would earn a total of  3,639  from holding Ecolab Inc or generate 15.73% return on investment over 90 days.

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

Magna International  vs.  Ecolab Inc

Magna International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Magna International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 Magna International and Ecolab

The main advantage of trading using opposite Magna International and Ecolab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magna International 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 Magna International 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.