Correlation Between Waste Management and Microsoft

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

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

Diversification Opportunities for Waste Management and Microsoft

0.53

Correlation Coefficient

Waste Management  Microsoft

Very weak diversification

The 3 months correlation between Waste and Microsoft is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Waste Management i.e., Waste Management and Microsoft go up and down completely randomly.

Pair Corralation between Waste Management and Microsoft

Assuming the 90 days trading horizon Waste Management is expected to generate 2.11 times less return on investment than Microsoft. But when comparing it to its historical volatility, Waste Management is 1.22 times less risky than Microsoft. It trades about 0.06 of its potential returns per unit of risk. Microsoft is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  20,747  in Microsoft on September 28, 2024 and sell it today you would earn a total of  21,083  from holding Microsoft or generate 101.62% return on investment over 90 days.

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

Waste Management  vs.  Microsoft

Waste Management

Risk-Adjusted Performance

7 of 100

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. In spite of comparatively uncertain basic indicators, Waste Management may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Microsoft

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Waste Management and Microsoft

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

The idea behind Waste Management and Microsoft 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.