Correlation Between Ecolab and International Flavors

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

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

Diversification Opportunities for Ecolab and International Flavors

0.74

Correlation Coefficient

Ecolab  International Flavors

Poor diversification

The 3 months correlation between Ecolab and International is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and International Flavors Fragranc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Flavors 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 International Flavors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Flavors has no effect on the direction of Ecolab i.e., Ecolab and International Flavors go up and down completely randomly.

Pair Corralation between Ecolab and International Flavors

Considering the 90-day investment horizon Ecolab Inc is expected to generate 0.6 times more return on investment than International Flavors. However, Ecolab Inc is 1.66 times less risky than International Flavors. It trades about 0.08 of its potential returns per unit of risk. International Flavors Fragrances is currently generating about 0.02 per unit of risk. If you would invest  18,532  in Ecolab Inc on September 12, 2024 and sell it today you would earn a total of  6,173  from holding Ecolab Inc or generate 33.31% return on investment over 90 days.

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

Ecolab Inc  vs.  International Flavors Fragranc

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.

International Flavors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Flavors Fragrances has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Ecolab and International Flavors

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

The idea behind Ecolab Inc and International Flavors Fragrances 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.