Correlation Between Dominos Pizza and Ecolab

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

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

Diversification Opportunities for Dominos Pizza and Ecolab

-0.08

Correlation Coefficient

Dominos Pizza  Ecolab

Good diversification

The 3 months correlation between Dominos and Ecolab is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Dominos Pizza and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and Dominos Pizza 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 Dominos Pizza are associated (or correlated) with Ecolab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecolab Inc has no effect on the direction of Dominos Pizza i.e., Dominos Pizza and Ecolab go up and down completely randomly.

Pair Corralation between Dominos Pizza and Ecolab

Considering the 90-day investment horizon Dominos Pizza is expected to generate 1.7 times more return on investment than Ecolab. However, Dominos Pizza is 1.7 times more volatile than Ecolab Inc. It trades about 0.07 of its potential returns per unit of risk. Ecolab Inc is currently generating about -0.06 per unit of risk. If you would invest  41,171  in Dominos Pizza on August 20, 2024 and sell it today you would earn a total of  1,872  from holding Dominos Pizza or generate 4.55% return on investment over 90 days.

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

Dominos Pizza  vs.  Ecolab Inc

Dominos Pizza

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dominos Pizza are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Dominos Pizza is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Ecolab Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ecolab Inc are ranked lower than 2 (%) 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 latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Dominos Pizza and Ecolab

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

The idea behind Dominos Pizza and Ecolab Inc 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.