Correlation Between Waste Management and Lindsell Train

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

By analyzing existing cross correlation between Waste Management and Lindsell Train Investment, you can compare the effects of market volatilities on Waste Management and Lindsell Train 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 Lindsell Train. Check out your portfolio center. Please also check ongoing floating volatility patterns of Waste Management and Lindsell Train.

Diversification Opportunities for Waste Management and Lindsell Train

-0.64

Correlation Coefficient

Waste Management  Lindsell Train

Excellent diversification

The 3 months correlation between Waste and Lindsell is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Lindsell Train Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lindsell Train Investment 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 Lindsell Train. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lindsell Train Investment has no effect on the direction of Waste Management i.e., Waste Management and Lindsell Train go up and down completely randomly.

Pair Corralation between Waste Management and Lindsell Train

Assuming the 90 days trading horizon Waste Management is expected to under-perform the Lindsell Train. But the stock apears to be less risky and, when comparing its historical volatility, Waste Management is 1.43 times less risky than Lindsell Train. The stock trades about -0.01 of its potential returns per unit of risk. The Lindsell Train Investment is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  72,600  in Lindsell Train Investment on September 19, 2024 and sell it today you would earn a total of  8,500  from holding Lindsell Train Investment or generate 11.71% return on investment over 90 days.

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

Waste Management  vs.  Lindsell Train Investment

Waste Management

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Waste Management is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Lindsell Train Investment

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lindsell Train Investment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Lindsell Train is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Waste Management and Lindsell Train

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

The idea behind Waste Management and Lindsell Train Investment 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.