Correlation Between Ecolab and Cabot
Can any of the company-specific risk be diversified away by investing in both Ecolab and Cabot 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 Cabot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ecolab Inc and Cabot, you can compare the effects of market volatilities on Ecolab and Cabot 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 Cabot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecolab and Cabot.
Diversification Opportunities for Ecolab and Cabot
Very weak diversification
The 3 months correlation between Ecolab and Cabot is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Cabot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cabot 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 Cabot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cabot has no effect on the direction of Ecolab i.e., Ecolab and Cabot go up and down completely randomly.
Pair Corralation between Ecolab and Cabot
Considering the 90-day investment horizon Ecolab Inc is expected to under-perform the Cabot. But the stock apears to be less risky and, when comparing its historical volatility, Ecolab Inc is 2.26 times less risky than Cabot. The stock trades about -0.22 of its potential returns per unit of risk. The Cabot is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 11,026 in Cabot on August 27, 2024 and sell it today you would earn a total of 10.00 from holding Cabot or generate 0.09% 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. Cabot
Performance |
| Timeline |
| Ecolab Inc |
| Cabot |
Ecolab and Cabot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ecolab and Cabot
The main advantage of trading using opposite Ecolab and Cabot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecolab position performs unexpectedly, Cabot 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 Cabot will offset losses from the drop in Cabot's long position.| Ecolab vs. Linde plc Ordinary | Ecolab vs. PPG Industries | Ecolab vs. Sherwin Williams Co | Ecolab vs. LyondellBasell Industries NV |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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