Correlation Between Valhi and Ecolab

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

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

Diversification Opportunities for Valhi and Ecolab

0.72

Correlation Coefficient

Valhi  Ecolab

Poor diversification

The 3 months correlation between Valhi and Ecolab is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Valhi Inc and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and Valhi 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 Valhi Inc 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 Valhi i.e., Valhi and Ecolab go up and down completely randomly.

Pair Corralation between Valhi and Ecolab

Considering the 90-day investment horizon Valhi Inc is expected to under-perform the Ecolab. In addition to that, Valhi is 2.2 times more volatile than Ecolab Inc. It trades about -0.21 of its total potential returns per unit of risk. Ecolab Inc is currently generating about -0.34 per unit of volatility. If you would invest  24,775  in Ecolab Inc on October 15, 2024 and sell it today you would lose (1,803) from holding Ecolab Inc or give up 7.28% of portfolio value over 90 days.

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

Valhi Inc  vs.  Ecolab Inc

Valhi Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valhi Inc 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 indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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 Valhi and Ecolab

The main advantage of trading using opposite Valhi and Ecolab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Valhi 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 Valhi Inc 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.