Correlation Between Ecolab and Arkema SA

Can any of the company-specific risk be diversified away by investing in both Ecolab and Arkema SA 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 Arkema SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ecolab Inc and Arkema SA ADR, you can compare the effects of market volatilities on Ecolab and Arkema SA 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 Arkema SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecolab and Arkema SA.

Diversification Opportunities for Ecolab and Arkema SA

-0.54

Correlation Coefficient

Ecolab  Arkema SA

Excellent diversification

The 3 months correlation between Ecolab and Arkema is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Arkema SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arkema SA ADR 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 Arkema SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arkema SA ADR has no effect on the direction of Ecolab i.e., Ecolab and Arkema SA go up and down completely randomly.

Pair Corralation between Ecolab and Arkema SA

Considering the 90-day investment horizon Ecolab Inc is expected to under-perform the Arkema SA. But the stock apears to be less risky and, when comparing its historical volatility, Ecolab Inc is 1.87 times less risky than Arkema SA. The stock trades about -0.18 of its potential returns per unit of risk. The Arkema SA ADR is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  10,360  in Arkema SA ADR on January 26, 2024 and sell it today you would lose (116.00) from holding Arkema SA ADR or give up 1.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Ecolab Inc  vs.  Arkema SA ADR

Ecolab Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ecolab Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental indicators, Ecolab may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Arkema SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arkema SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Ecolab and Arkema SA

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

The idea behind Ecolab Inc and Arkema SA ADR 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.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.