Correlation Between Waste Management and Waste Connections

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

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

Diversification Opportunities for Waste Management and Waste Connections

0.92

Correlation Coefficient

Waste Management  Waste Connections

Almost no diversification

The 3 months correlation between Waste and Waste is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Waste Connections in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Connections 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 Waste Connections. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Connections has no effect on the direction of Waste Management i.e., Waste Management and Waste Connections go up and down completely randomly.

Pair Corralation between Waste Management and Waste Connections

Assuming the 90 days trading horizon Waste Management is expected to generate 1.1 times more return on investment than Waste Connections. However, Waste Management is 1.1 times more volatile than Waste Connections. It trades about 0.09 of its potential returns per unit of risk. Waste Connections is currently generating about 0.08 per unit of risk. If you would invest  13,564  in Waste Management on December 2, 2024 and sell it today you would earn a total of  8,576  from holding Waste Management or generate 63.23% return on investment over 90 days.

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

Waste Management  vs.  Waste Connections

Waste Management

Risk-Adjusted Performance

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 rather sound basic indicators, Waste Management is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Waste Connections

Risk-Adjusted Performance

Very Weak

Over the last 90 days Waste Connections has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Waste Connections is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Waste Management and Waste Connections

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

The idea behind Waste Management and Waste Connections 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.