Correlation Between Ecolab and Mitsui Chemicals

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

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

Diversification Opportunities for Ecolab and Mitsui Chemicals

0.77

Correlation Coefficient

Ecolab  Mitsui Chemicals

Poor diversification

The 3 months correlation between Ecolab and Mitsui is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Mitsui Chemicals ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsui Chemicals ADR 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 Mitsui Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsui Chemicals ADR has no effect on the direction of Ecolab i.e., Ecolab and Mitsui Chemicals go up and down completely randomly.

Pair Corralation between Ecolab and Mitsui Chemicals

Considering the 90-day investment horizon Ecolab Inc is expected to generate 0.18 times more return on investment than Mitsui Chemicals. However, Ecolab Inc is 5.65 times less risky than Mitsui Chemicals. It trades about -0.16 of its potential returns per unit of risk. Mitsui Chemicals ADR is currently generating about -0.07 per unit of risk. If you would invest  25,578  in Ecolab Inc on September 27, 2024 and sell it today you would lose (1,651) from holding Ecolab Inc or give up 6.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.67%
Values	Daily Returns

Ecolab Inc  vs.  Mitsui Chemicals ADR

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

Mitsui Chemicals ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsui Chemicals ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Ecolab and Mitsui Chemicals

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

The idea behind Ecolab Inc and Mitsui Chemicals ADR 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.