Correlation Between Ecolab and Merck
Can any of the company-specific risk be diversified away by investing in both Ecolab and Merck 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 Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ecolab Inc and Merck Company, you can compare the effects of market volatilities on Ecolab and Merck 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 Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecolab and Merck.
Diversification Opportunities for Ecolab and Merck
Good diversification
The 3 months correlation between Ecolab and Merck is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Ecolab i.e., Ecolab and Merck go up and down completely randomly.
Pair Corralation between Ecolab and Merck
Considering the 90-day investment horizon Ecolab Inc is expected to generate 0.9 times more return on investment than Merck. However, Ecolab Inc is 1.11 times less risky than Merck. It trades about 0.1 of its potential returns per unit of risk. Merck Company is currently generating about -0.1 per unit of risk. If you would invest 23,512 in Ecolab Inc on July 2, 2024 and sell it today you would earn a total of 2,021 from holding Ecolab Inc or generate 8.6% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Ecolab Inc vs. Merck Company
Performance |
Timeline |
Ecolab Inc |
Merck Company |
Ecolab and Merck Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Ecolab and Merck
The main advantage of trading using opposite Ecolab and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecolab position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.Ecolab vs. Linde plc Ordinary | Ecolab vs. PPG Industries | Ecolab vs. Sherwin Williams Co | Ecolab vs. LyondellBasell Industries NV |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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