Correlation Between Ecolab and Givaudan

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

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

Diversification Opportunities for Ecolab and Givaudan

0.75

Correlation Coefficient

Ecolab  Givaudan

Poor diversification

The 3 months correlation between Ecolab and Givaudan is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Givaudan SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Givaudan SA 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 Givaudan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Givaudan SA has no effect on the direction of Ecolab i.e., Ecolab and Givaudan go up and down completely randomly.

Pair Corralation between Ecolab and Givaudan

Considering the 90-day investment horizon Ecolab Inc is expected to generate 0.58 times more return on investment than Givaudan. However, Ecolab Inc is 1.72 times less risky than Givaudan. It trades about -0.18 of its potential returns per unit of risk. Givaudan SA is currently generating about -0.23 per unit of risk. If you would invest  22,823  in Ecolab Inc on January 26, 2024 and sell it today you would lose (745.00) from holding Ecolab Inc or give up 3.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Ecolab Inc  vs.  Givaudan SA

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.

Givaudan SA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Givaudan SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, Givaudan is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Ecolab and Givaudan

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

The idea behind Ecolab Inc and Givaudan SA 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.