Correlation Between Ecolab and NORFOLK

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

Diversification Opportunities for Ecolab and NORFOLK

0.59
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Ecolab and NORFOLK is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and NORFOLK SOUTHN P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORFOLK SOUTHN P 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 NORFOLK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORFOLK SOUTHN P has no effect on the direction of Ecolab i.e., Ecolab and NORFOLK go up and down completely randomly.

Pair Corralation between Ecolab and NORFOLK

Considering the 90-day investment horizon Ecolab Inc is expected to generate 1.37 times more return on investment than NORFOLK. However, Ecolab is 1.37 times more volatile than NORFOLK SOUTHN P. It trades about 0.08 of its potential returns per unit of risk. NORFOLK SOUTHN P is currently generating about -0.01 per unit of risk. If you would invest  18,532  in Ecolab Inc on September 12, 2024 and sell it today you would earn a total of  6,173  from holding Ecolab Inc or generate 33.31% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy59.38%
ValuesDaily Returns

Ecolab Inc  vs.  NORFOLK SOUTHN P

 Performance 
       Timeline  
Ecolab Inc 

Risk-Adjusted Performance

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Weak
 
Strong
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 recent stock price mess, may contribute to short-term losses for the institutional investors.
NORFOLK SOUTHN P 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days NORFOLK SOUTHN P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for NORFOLK SOUTHN P investors.

Ecolab and NORFOLK Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ecolab and NORFOLK

The main advantage of trading using opposite Ecolab and NORFOLK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecolab position performs unexpectedly, NORFOLK 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 NORFOLK will offset losses from the drop in NORFOLK's long position.
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The idea behind Ecolab Inc and NORFOLK SOUTHN P 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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