Correlation Between Linde Plc and Ecolab

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

By analyzing existing cross correlation between Linde plc Ordinary and Ecolab Inc, you can compare the effects of market volatilities on Linde Plc and Ecolab 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 Linde Plc with a short position of Ecolab. Check out your portfolio center. Please also check ongoing floating volatility patterns of Linde Plc and Ecolab.

Diversification Opportunities for Linde Plc and Ecolab

0.86

Correlation Coefficient

Linde Plc  Ecolab

Very poor diversification

The 3 months correlation between Linde and Ecolab is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Linde plc Ordinary and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and Linde Plc 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 Linde plc Ordinary are associated (or correlated) with Ecolab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecolab Inc has no effect on the direction of Linde Plc i.e., Linde Plc and Ecolab go up and down completely randomly.

Pair Corralation between Linde Plc and Ecolab

Considering the 90-day investment horizon Linde plc Ordinary is expected to under-perform the Ecolab. But the stock apears to be less risky and, when comparing its historical volatility, Linde plc Ordinary is 1.01 times less risky than Ecolab. The stock trades about -0.07 of its potential returns per unit of risk. The Ecolab Inc is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  25,261  in Ecolab Inc on August 30, 2024 and sell it today you would lose (491.00) from holding Ecolab Inc or give up 1.94% of portfolio value over 90 days.

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

Linde plc Ordinary  vs.  Ecolab Inc

Linde plc Ordinary

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Linde plc Ordinary has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Linde Plc is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

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.

Pair Trading with Linde Plc and Ecolab

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

The idea behind Linde plc Ordinary and Ecolab Inc 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.