Correlation Between Waste Management and NTG Nordic

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

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

Diversification Opportunities for Waste Management and NTG Nordic

-0.18

Correlation Coefficient

Waste Management  NTG Nordic

Good diversification

The 3 months correlation between Waste and NTG is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and NTG Nordic Transport in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NTG Nordic Transport 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 NTG Nordic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NTG Nordic Transport has no effect on the direction of Waste Management i.e., Waste Management and NTG Nordic go up and down completely randomly.

Pair Corralation between Waste Management and NTG Nordic

Assuming the 90 days trading horizon Waste Management is expected to under-perform the NTG Nordic. But the stock apears to be less risky and, when comparing its historical volatility, Waste Management is 1.24 times less risky than NTG Nordic. The stock trades about -0.13 of its potential returns per unit of risk. The NTG Nordic Transport is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  3,835  in NTG Nordic Transport on September 13, 2024 and sell it today you would lose (120.00) from holding NTG Nordic Transport or give up 3.13% of portfolio value over 90 days.

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

Waste Management  vs.  NTG Nordic Transport

Waste Management

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 9 (%) 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.

NTG Nordic Transport

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Waste Management and NTG Nordic

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

The idea behind Waste Management and NTG Nordic Transport 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.