Correlation Between Waste Management and Clean Harbors

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

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

Diversification Opportunities for Waste Management and Clean Harbors

0.78

Correlation Coefficient

Waste Management  Clean Harbors

Poor diversification

The 3 months correlation between Waste and Clean is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Clean Harbors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Harbors 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 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 Waste Management i.e., Waste Management and Clean Harbors go up and down completely randomly.

Pair Corralation between Waste Management and Clean Harbors

Assuming the 90 days horizon Waste Management is expected to generate 0.65 times more return on investment than Clean Harbors. However, Waste Management is 1.54 times less risky than Clean Harbors. It trades about 0.16 of its potential returns per unit of risk. Clean Harbors is currently generating about 0.08 per unit of risk. If you would invest  19,018  in Waste Management on August 31, 2024 and sell it today you would earn a total of  2,677  from holding Waste Management or generate 14.08% return on investment over 90 days.

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

Waste Management  vs.  Clean Harbors

Waste Management

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Waste Management reported solid returns over the last few months and may actually be approaching a breakup point.

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 nearly uncertain basic indicators, Clean Harbors may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Waste Management and Clean Harbors

The main advantage of trading using opposite Waste Management and Clean Harbors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Waste Management 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 Waste Management 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.

Check out your portfolio center.

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.