Correlation Between Stericycle and Casella Waste

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

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

Diversification Opportunities for Stericycle and Casella Waste

0.59

Correlation Coefficient

Stericycle  Casella Waste

Very weak diversification

The 3 months correlation between Stericycle and Casella is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Stericycle and Casella Waste Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Casella Waste Systems and Stericycle 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 Stericycle are associated (or correlated) with Casella Waste. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Casella Waste Systems has no effect on the direction of Stericycle i.e., Stericycle and Casella Waste go up and down completely randomly.

Pair Corralation between Stericycle and Casella Waste

Given the investment horizon of 90 days Stericycle is expected to generate 2.57 times more return on investment than Casella Waste. However, Stericycle is 2.57 times more volatile than Casella Waste Systems. It trades about 0.16 of its potential returns per unit of risk. Casella Waste Systems is currently generating about 0.09 per unit of risk. If you would invest  5,905  in Stericycle on September 1, 2024 and sell it today you would earn a total of  1,945  from holding Stericycle or generate 32.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	80.95%
Values	Daily Returns

Stericycle  vs.  Casella Waste Systems

Stericycle

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Stericycle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite inconsistent fundamental indicators, Stericycle disclosed solid returns over the last few months and may actually be approaching a breakup point.

Casella Waste Systems

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Casella Waste Systems are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Casella Waste may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Stericycle and Casella Waste

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

The idea behind Stericycle and Casella Waste Systems 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.