Correlation Between Ecolab and Mach Natural

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

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

Diversification Opportunities for Ecolab and Mach Natural

0.44

Correlation Coefficient

Ecolab  Mach Natural

Very weak diversification

The 3 months correlation between Ecolab and Mach is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Mach Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mach Natural Resources 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 Mach Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mach Natural Resources has no effect on the direction of Ecolab i.e., Ecolab and Mach Natural go up and down completely randomly.

Pair Corralation between Ecolab and Mach Natural

Considering the 90-day investment horizon Ecolab Inc is expected to generate 0.61 times more return on investment than Mach Natural. However, Ecolab Inc is 1.65 times less risky than Mach Natural. It trades about -0.02 of its potential returns per unit of risk. Mach Natural Resources is currently generating about -0.04 per unit of risk. If you would invest  25,263  in Ecolab Inc on September 14, 2024 and sell it today you would lose (382.00) from holding Ecolab Inc or give up 1.51% of portfolio value over 90 days.

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

Ecolab Inc  vs.  Mach Natural Resources

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.

Mach Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mach Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Mach Natural is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Ecolab and Mach Natural

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

The idea behind Ecolab Inc and Mach Natural Resources 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.