Correlation Between Ecolab and BRISTOL

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Can any of the company-specific risk be diversified away by investing in both Ecolab and BRISTOL 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 BRISTOL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ecolab Inc and BRISTOL MYERS SQUIBB CO, you can compare the effects of market volatilities on Ecolab and BRISTOL 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 BRISTOL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecolab and BRISTOL.

Diversification Opportunities for Ecolab and BRISTOL

0.05
  Correlation Coefficient

Significant diversification

The 3 months correlation between Ecolab and BRISTOL is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and BRISTOL MYERS SQUIBB CO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRISTOL MYERS SQUIBB 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 BRISTOL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRISTOL MYERS SQUIBB has no effect on the direction of Ecolab i.e., Ecolab and BRISTOL go up and down completely randomly.

Pair Corralation between Ecolab and BRISTOL

Considering the 90-day investment horizon Ecolab Inc is expected to generate 1.36 times more return on investment than BRISTOL. However, Ecolab is 1.36 times more volatile than BRISTOL MYERS SQUIBB CO. It trades about -0.03 of its potential returns per unit of risk. BRISTOL MYERS SQUIBB CO is currently generating about -0.04 per unit of risk. If you would invest  24,990  in Ecolab Inc on September 14, 2024 and sell it today you would lose (109.00) from holding Ecolab Inc or give up 0.44% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy76.19%
ValuesDaily Returns

Ecolab Inc  vs.  BRISTOL MYERS SQUIBB CO

 Performance 
       Timeline  
Ecolab Inc 

Risk-Adjusted Performance

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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 current stock price mess, may contribute to short-term losses for the institutional investors.
BRISTOL MYERS SQUIBB 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days BRISTOL MYERS SQUIBB CO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BRISTOL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Ecolab and BRISTOL Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ecolab and BRISTOL

The main advantage of trading using opposite Ecolab and BRISTOL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecolab position performs unexpectedly, BRISTOL 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 BRISTOL will offset losses from the drop in BRISTOL's long position.
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The idea behind Ecolab Inc and BRISTOL MYERS SQUIBB CO 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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