Correlation Between Ecolab and Aquestive Therapeutics

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

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

Diversification Opportunities for Ecolab and Aquestive Therapeutics

0.31

Correlation Coefficient

Ecolab  Aquestive Therapeutics

Weak diversification

The 3 months correlation between Ecolab and Aquestive is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Aquestive Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aquestive Therapeutics and Ecolab 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 Ecolab Inc are associated (or correlated) with Aquestive Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aquestive Therapeutics has no effect on the direction of Ecolab i.e., Ecolab and Aquestive Therapeutics go up and down completely randomly.

Pair Corralation between Ecolab and Aquestive Therapeutics

Considering the 90-day investment horizon Ecolab is expected to generate 30.99 times less return on investment than Aquestive Therapeutics. But when comparing it to its historical volatility, Ecolab Inc is 4.77 times less risky than Aquestive Therapeutics. It trades about 0.01 of its potential returns per unit of risk. Aquestive Therapeutics is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  419.00  in Aquestive Therapeutics on September 3, 2024 and sell it today you would earn a total of  90.00  from holding Aquestive Therapeutics or generate 21.48% return on investment over 90 days.

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

Ecolab Inc  vs.  Aquestive Therapeutics

Ecolab Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ecolab Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Ecolab is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Aquestive Therapeutics

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aquestive Therapeutics are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Aquestive Therapeutics unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecolab and Aquestive Therapeutics

The main advantage of trading using opposite Ecolab and Aquestive Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecolab position performs unexpectedly, Aquestive Therapeutics 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 Aquestive Therapeutics will offset losses from the drop in Aquestive Therapeutics' long position.

The idea behind Ecolab Inc and Aquestive Therapeutics 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.