Correlation Between Bank of America and Waste Management

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

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

Diversification Opportunities for Bank of America and Waste Management

0.13

Correlation Coefficient

Bank of America  Waste Management

Average diversification

The 3 months correlation between Bank and Waste is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management and Bank of America 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 Bank of America are associated (or correlated) with Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of Bank of America i.e., Bank of America and Waste Management go up and down completely randomly.

Pair Corralation between Bank of America and Waste Management

Considering the 90-day investment horizon Bank of America is expected to under-perform the Waste Management. In addition to that, Bank of America is 1.35 times more volatile than Waste Management. It trades about -0.03 of its total potential returns per unit of risk. Waste Management is currently generating about 0.09 per unit of volatility. If you would invest  19,659  in Waste Management on December 27, 2024 and sell it today you would earn a total of  1,301  from holding Waste Management or generate 6.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Bank of America  vs.  Waste Management

Bank of America

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Bank of America is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Waste Management

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Waste Management may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Bank of America and Waste Management

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

The idea behind Bank of America and Waste Management 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.