Correlation Between Ecolab and Mogul Energy

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

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

Diversification Opportunities for Ecolab and Mogul Energy

0.6

Correlation Coefficient

Ecolab  Mogul Energy

Poor diversification

The 3 months correlation between Ecolab and Mogul is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Mogul Energy International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mogul Energy Interna 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 Mogul Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mogul Energy Interna has no effect on the direction of Ecolab i.e., Ecolab and Mogul Energy go up and down completely randomly.

Pair Corralation between Ecolab and Mogul Energy

Considering the 90-day investment horizon Ecolab is expected to generate 57.6 times less return on investment than Mogul Energy. But when comparing it to its historical volatility, Ecolab Inc is 14.9 times less risky than Mogul Energy. It trades about 0.03 of its potential returns per unit of risk. Mogul Energy International is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  0.46  in Mogul Energy International on August 20, 2024 and sell it today you would earn a total of  0.23  from holding Mogul Energy International or generate 50.0% return on investment over 90 days.

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

Ecolab Inc  vs.  Mogul Energy International

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.

Mogul Energy Interna

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mogul Energy International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Mogul Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecolab and Mogul Energy

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

The idea behind Ecolab Inc and Mogul Energy International 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.