Correlation Between Waste Management and Home Depot

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

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

Diversification Opportunities for Waste Management and Home Depot

0.38

Correlation Coefficient

Waste Management  Home Depot

Weak diversification

The 3 months correlation between Waste and Home is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot and Waste Management 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 Waste Management are associated (or correlated) with Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Waste Management i.e., Waste Management and Home Depot go up and down completely randomly.

Pair Corralation between Waste Management and Home Depot

Assuming the 90 days trading horizon Waste Management is expected to generate 7.02 times more return on investment than Home Depot. However, Waste Management is 7.02 times more volatile than Home Depot. It trades about 0.13 of its potential returns per unit of risk. Home Depot is currently generating about 0.13 per unit of risk. If you would invest  20,924  in Waste Management on August 31, 2024 and sell it today you would earn a total of  2,015  from holding Waste Management or generate 9.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Waste Management  vs.  Home Depot

Waste Management

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Waste Management may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Home Depot

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Home Depot is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Waste Management and Home Depot

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

The idea behind Waste Management and Home Depot 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.