Correlation Between China Aircraft and Ecolab

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

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

Diversification Opportunities for China Aircraft and Ecolab

0.35

Correlation Coefficient

China Aircraft  Ecolab

Weak diversification

The 3 months correlation between China and Ecolab is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding China Aircraft Leasing and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and China Aircraft 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 China Aircraft Leasing 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 China Aircraft i.e., China Aircraft and Ecolab go up and down completely randomly.

Pair Corralation between China Aircraft and Ecolab

Assuming the 90 days horizon China Aircraft Leasing is expected to under-perform the Ecolab. In addition to that, China Aircraft is 1.03 times more volatile than Ecolab Inc. It trades about -0.13 of its total potential returns per unit of risk. Ecolab Inc is currently generating about -0.02 per unit of volatility. If you would invest  25,263  in Ecolab Inc on September 14, 2024 and sell it today you would lose (373.00) from holding Ecolab Inc or give up 1.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

China Aircraft Leasing  vs.  Ecolab Inc

China Aircraft Leasing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Aircraft Leasing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 quite persistent fundamental indicators, Ecolab is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with China Aircraft and Ecolab

The main advantage of trading using opposite China Aircraft and Ecolab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Aircraft 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 China Aircraft Leasing 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.