Correlation Between Waste Management and Transportadora

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

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

Diversification Opportunities for Waste Management and Transportadora

0.88

Correlation Coefficient

Waste Management  Transportadora

Very poor diversification

The 3 months correlation between Waste and Transportadora is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Transportadora de Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transportadora de Gas 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 Transportadora. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transportadora de Gas has no effect on the direction of Waste Management i.e., Waste Management and Transportadora go up and down completely randomly.

Pair Corralation between Waste Management and Transportadora

Assuming the 90 days trading horizon Waste Management is expected to generate 3.95 times less return on investment than Transportadora. But when comparing it to its historical volatility, Waste Management is 3.3 times less risky than Transportadora. It trades about 0.18 of its potential returns per unit of risk. Transportadora de Gas is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,710  in Transportadora de Gas on September 3, 2024 and sell it today you would earn a total of  1,150  from holding Transportadora de Gas or generate 67.25% return on investment over 90 days.

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

Waste Management  vs.  Transportadora de Gas

Waste Management

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Waste Management unveiled solid returns over the last few months and may actually be approaching a breakup point.

Transportadora de Gas

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Transportadora de Gas are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking signals, Transportadora reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waste Management and Transportadora

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

The idea behind Waste Management and Transportadora de Gas 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.