Correlation Between Ecolab and Cabot

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

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

Diversification Opportunities for Ecolab and Cabot

0.29

Correlation Coefficient

Ecolab  Cabot

Modest diversification

The 3 months correlation between Ecolab and Cabot is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Cabot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cabot 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 Cabot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cabot has no effect on the direction of Ecolab i.e., Ecolab and Cabot go up and down completely randomly.

Pair Corralation between Ecolab and Cabot

Considering the 90-day investment horizon Ecolab is expected to generate 1.67 times less return on investment than Cabot. But when comparing it to its historical volatility, Ecolab Inc is 1.67 times less risky than Cabot. It trades about 0.08 of its potential returns per unit of risk. Cabot is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6,726  in Cabot on September 12, 2024 and sell it today you would earn a total of  3,866  from holding Cabot or generate 57.48% 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.  Cabot

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 recent stock price mess, may contribute to short-term losses for the institutional investors.

Cabot

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cabot are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, Cabot is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Ecolab and Cabot

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

The idea behind Ecolab Inc and Cabot 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.