Correlation Between Ecolab and Linde Plc

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

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

Diversification Opportunities for Ecolab and Linde Plc

0.92

Correlation Coefficient

Ecolab  Linde Plc

Almost no diversification

The 3 months correlation between Ecolab and Linde is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Linde plc Ordinary in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linde plc Ordinary 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 Linde Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linde plc Ordinary has no effect on the direction of Ecolab i.e., Ecolab and Linde Plc go up and down completely randomly.

Pair Corralation between Ecolab and Linde Plc

Considering the 90-day investment horizon Ecolab Inc is expected to generate 1.08 times more return on investment than Linde Plc. However, Ecolab is 1.08 times more volatile than Linde plc Ordinary. It trades about -0.17 of its potential returns per unit of risk. Linde plc Ordinary is currently generating about -0.27 per unit of risk. If you would invest  22,793  in Ecolab Inc on January 31, 2024 and sell it today you would lose (626.00) from holding Ecolab Inc or give up 2.75% of portfolio value over 90 days.

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

Ecolab Inc  vs.  Linde plc Ordinary

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 unsteady fundamental indicators, Ecolab may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Linde plc Ordinary

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Linde plc Ordinary are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile forward indicators, Linde Plc may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Ecolab and Linde Plc

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

The idea behind Ecolab Inc and Linde plc Ordinary 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.