Correlation Between Ecolab and 55336VAM2

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Can any of the company-specific risk be diversified away by investing in both Ecolab and 55336VAM2 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 55336VAM2 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ecolab Inc and MPLX LP 45, you can compare the effects of market volatilities on Ecolab and 55336VAM2 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 55336VAM2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecolab and 55336VAM2.

Diversification Opportunities for Ecolab and 55336VAM2

0.27
  Correlation Coefficient

Modest diversification

The 3 months correlation between Ecolab and 55336VAM2 is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and MPLX LP 45 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MPLX LP 45 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 55336VAM2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MPLX LP 45 has no effect on the direction of Ecolab i.e., Ecolab and 55336VAM2 go up and down completely randomly.

Pair Corralation between Ecolab and 55336VAM2

Considering the 90-day investment horizon Ecolab Inc is expected to generate 1.72 times more return on investment than 55336VAM2. However, Ecolab is 1.72 times more volatile than MPLX LP 45. It trades about 0.08 of its potential returns per unit of risk. MPLX LP 45 is currently generating about -0.02 per unit of risk. If you would invest  19,711  in Ecolab Inc on November 9, 2024 and sell it today you would earn a total of  5,292  from holding Ecolab Inc or generate 26.85% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy93.26%
ValuesDaily Returns

Ecolab Inc  vs.  MPLX LP 45

 Performance 
       Timeline  
Ecolab Inc 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
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 recent stock price mess, may contribute to short-term losses for the institutional investors.
MPLX LP 45 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days MPLX LP 45 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 55336VAM2 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Ecolab and 55336VAM2 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ecolab and 55336VAM2

The main advantage of trading using opposite Ecolab and 55336VAM2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecolab position performs unexpectedly, 55336VAM2 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 55336VAM2 will offset losses from the drop in 55336VAM2's long position.
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The idea behind Ecolab Inc and MPLX LP 45 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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