Correlation Between ABM Industries and Montrose Environmental

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

By analyzing existing cross correlation between ABM Industries Incorporated and Montrose Environmental Grp, you can compare the effects of market volatilities on ABM Industries and Montrose Environmental 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 ABM Industries with a short position of Montrose Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABM Industries and Montrose Environmental.

Diversification Opportunities for ABM Industries and Montrose Environmental

-0.28

Correlation Coefficient

ABM Industries  Montrose Environmental

Very good diversification

The 3 months correlation between ABM and Montrose is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding ABM Industries Incorporated and Montrose Environmental Grp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Montrose Environmental and ABM Industries 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 ABM Industries Incorporated are associated (or correlated) with Montrose Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Montrose Environmental has no effect on the direction of ABM Industries i.e., ABM Industries and Montrose Environmental go up and down completely randomly.

Pair Corralation between ABM Industries and Montrose Environmental

Considering the 90-day investment horizon ABM Industries Incorporated is expected to generate 0.33 times more return on investment than Montrose Environmental. However, ABM Industries Incorporated is 3.04 times less risky than Montrose Environmental. It trades about -0.02 of its potential returns per unit of risk. Montrose Environmental Grp is currently generating about -0.1 per unit of risk. If you would invest  5,253  in ABM Industries Incorporated on September 30, 2024 and sell it today you would lose (149.00) from holding ABM Industries Incorporated or give up 2.84% of portfolio value over 90 days.

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

ABM Industries Incorporated  vs.  Montrose Environmental Grp

ABM Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABM Industries Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, ABM Industries is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Montrose Environmental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Montrose Environmental Grp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with ABM Industries and Montrose Environmental

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

The idea behind ABM Industries Incorporated and Montrose Environmental Grp 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.