Correlation Between Ecolab and Big 5

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Can any of the company-specific risk be diversified away by investing in both Ecolab and Big 5 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 Big 5 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ecolab Inc and Big 5 Sporting, you can compare the effects of market volatilities on Ecolab and Big 5 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 Big 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecolab and Big 5.

Diversification Opportunities for Ecolab and Big 5

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between Ecolab and Big 5 is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Big 5 Sporting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big 5 Sporting 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 Big 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big 5 Sporting has no effect on the direction of Ecolab i.e., Ecolab and Big 5 go up and down completely randomly.

Pair Corralation between Ecolab and Big 5

Considering the 90-day investment horizon Ecolab Inc is expected to under-perform the Big 5. But the stock apears to be less risky and, when comparing its historical volatility, Ecolab Inc is 2.89 times less risky than Big 5. The stock trades about -0.03 of its potential returns per unit of risk. The Big 5 Sporting is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  772.00  in Big 5 Sporting on July 6, 2022 and sell it today you would earn a total of  317.00  from holding Big 5 Sporting or generate 41.06% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Ecolab Inc  vs.  Big 5 Sporting

 Performance (%) 
       Timeline  
Ecolab Inc 
Ecolab Performance
0 of 100
Over the last 90 days Ecolab Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady fundamental indicators, Ecolab is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Ecolab Price Channel

Big 5 Sporting 
Big 5 Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Big 5 Sporting are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable technical and fundamental indicators, Big 5 is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Big 5 Price Channel

Ecolab and Big 5 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ecolab and Big 5

The main advantage of trading using opposite Ecolab and Big 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecolab position performs unexpectedly, Big 5 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 Big 5 will offset losses from the drop in Big 5's long position.
Ecolab vs. Amazon Inc
The idea behind Ecolab Inc and Big 5 Sporting 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.
Big 5 vs. Best Buy Company
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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