Correlation Between Montrose Environmental and Clean Harbors

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

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

Diversification Opportunities for Montrose Environmental and Clean Harbors

-0.43

Correlation Coefficient

Montrose Environmental  Clean Harbors

Very good diversification

The 3 months correlation between Montrose and Clean is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Montrose Environmental Grp and Clean Harbors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Harbors and Montrose Environmental 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 Montrose Environmental Grp are associated (or correlated) with Clean Harbors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Harbors has no effect on the direction of Montrose Environmental i.e., Montrose Environmental and Clean Harbors go up and down completely randomly.

Pair Corralation between Montrose Environmental and Clean Harbors

Considering the 90-day investment horizon Montrose Environmental Grp is expected to under-perform the Clean Harbors. In addition to that, Montrose Environmental is 2.4 times more volatile than Clean Harbors. It trades about -0.14 of its total potential returns per unit of risk. Clean Harbors is currently generating about 0.08 per unit of volatility. If you would invest  23,651  in Clean Harbors on September 1, 2024 and sell it today you would earn a total of  2,358  from holding Clean Harbors or generate 9.97% return on investment over 90 days.

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

Montrose Environmental Grp  vs.  Clean Harbors

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 December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Clean Harbors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Clean Harbors are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating essential indicators, Clean Harbors may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Montrose Environmental and Clean Harbors

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

The idea behind Montrose Environmental Grp and Clean Harbors 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.