Correlation Between Ecolab and Commerzbank
Can any of the company-specific risk be diversified away by investing in both Ecolab and Commerzbank 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 Commerzbank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ecolab Inc and Commerzbank AG, you can compare the effects of market volatilities on Ecolab and Commerzbank 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 Commerzbank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecolab and Commerzbank.
Diversification Opportunities for Ecolab and Commerzbank
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ecolab and Commerzbank is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Commerzbank AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerzbank 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 Commerzbank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commerzbank AG has no effect on the direction of Ecolab i.e., Ecolab and Commerzbank go up and down completely randomly.
Pair Corralation between Ecolab and Commerzbank
Assuming the 90 days horizon Ecolab is expected to generate 1.58 times less return on investment than Commerzbank. But when comparing it to its historical volatility, Ecolab Inc is 1.72 times less risky than Commerzbank. It trades about 0.08 of its potential returns per unit of risk. Commerzbank AG is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 746.00 in Commerzbank AG on August 26, 2024 and sell it today you would earn a total of 789.00 from holding Commerzbank AG or generate 105.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ecolab Inc vs. Commerzbank AG
Performance |
| Timeline |
| Ecolab Inc |
| Commerzbank AG |
Ecolab and Commerzbank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ecolab and Commerzbank
The main advantage of trading using opposite Ecolab and Commerzbank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecolab position performs unexpectedly, Commerzbank 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 Commerzbank will offset losses from the drop in Commerzbank's long position.The idea behind Ecolab Inc and Commerzbank 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.| Commerzbank vs. KRISPY KREME DL 01 | Commerzbank vs. Iridium Communications | Commerzbank vs. HEMISPHERE EGY | Commerzbank vs. PACIFIC ONLINE |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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