Correlation Between Arm Holdings and Ecolab
Can any of the company-specific risk be diversified away by investing in both Arm Holdings 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 Arm Holdings and Ecolab into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Arm Holdings plc and Ecolab Inc, you can compare the effects of market volatilities on Arm Holdings 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 Arm Holdings with a short position of Ecolab. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arm Holdings and Ecolab.
Diversification Opportunities for Arm Holdings and Ecolab
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Arm and Ecolab is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Arm Holdings plc and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and Arm Holdings 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 Arm Holdings plc 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 Arm Holdings i.e., Arm Holdings and Ecolab go up and down completely randomly.
Pair Corralation between Arm Holdings and Ecolab
Considering the 90-day investment horizon Arm Holdings plc is expected to generate 4.54 times more return on investment than Ecolab. However, Arm Holdings is 4.54 times more volatile than Ecolab Inc. It trades about 0.07 of its potential returns per unit of risk. Ecolab Inc is currently generating about 0.09 per unit of risk. If you would invest 6,359 in Arm Holdings plc on September 1, 2024 and sell it today you would earn a total of 7,070 from holding Arm Holdings plc or generate 111.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 82.26% |
| Values | Daily Returns |
Arm Holdings plc vs. Ecolab Inc
Performance |
| Timeline |
| Arm Holdings plc |
| Ecolab Inc |
Arm Holdings and Ecolab Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Arm Holdings and Ecolab
The main advantage of trading using opposite Arm Holdings and Ecolab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arm Holdings 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.| Arm Holdings vs. ArcelorMittal SA ADR | Arm Holdings vs. Sanyo Special Steel | Arm Holdings vs. United States Steel | Arm Holdings vs. CECO Environmental Corp |
| Ecolab vs. Linde plc Ordinary | Ecolab vs. Air Products and | Ecolab vs. Aquagold International | Ecolab vs. Thrivent High Yield |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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