Correlation Between Ecolab and Sika AG

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

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

Diversification Opportunities for Ecolab and Sika AG

0.43

Correlation Coefficient

Ecolab  Sika AG

Very weak diversification

The 3 months correlation between Ecolab and Sika is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Sika AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sika AG 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 Sika AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sika AG has no effect on the direction of Ecolab i.e., Ecolab and Sika AG go up and down completely randomly.

Pair Corralation between Ecolab and Sika AG

Considering the 90-day investment horizon Ecolab Inc is expected to generate 0.23 times more return on investment than Sika AG. However, Ecolab Inc is 4.36 times less risky than Sika AG. It trades about 0.12 of its potential returns per unit of risk. Sika AG is currently generating about -0.05 per unit of risk. If you would invest  24,450  in Ecolab Inc on September 5, 2024 and sell it today you would earn a total of  436.00  from holding Ecolab Inc or generate 1.78% return on investment over 90 days.

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

Ecolab Inc  vs.  Sika AG

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.

Sika AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sika AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Ecolab and Sika AG

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

The idea behind Ecolab Inc and Sika AG 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.