Can any of the company-specific risk be diversified away by investing in both Ecolab and ZEN Graphene 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 ZEN Graphene into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ecolab Inc and ZEN Graphene Solutions, you can compare the effects of market volatilities on Ecolab and ZEN Graphene 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 ZEN Graphene. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecolab and ZEN Graphene.
Diversification Opportunities for Ecolab and ZEN Graphene
The 3 months correlation between Ecolab and ZEN is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and ZEN Graphene Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZEN Graphene Solutions 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 ZEN Graphene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZEN Graphene Solutions has no effect on the direction of Ecolab i.e., Ecolab and ZEN Graphene go up and down completely randomly.
Considering the 90-day investment horizon Ecolab is expected to generate 4.6 times less return on investment than ZEN Graphene. But when comparing it to its historical volatility, Ecolab Inc is 3.9 times less risky than ZEN Graphene. It trades about 0.1 of its potential returns per unit of risk. ZEN Graphene Solutions is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 109.00 in ZEN Graphene Solutions on March 6, 2024 and sell it today you would earn a total of 8.00 from holding ZEN Graphene Solutions or generate 7.34% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Ecolab Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. 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.
Over the last 90 days ZEN Graphene Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, ZEN Graphene is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.