Correlation Between Waste Management and APA

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

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

Diversification Opportunities for Waste Management and APA

-0.41

Correlation Coefficient

Waste Management  APA

Very good diversification

The 3 months correlation between Waste and APA is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and APA Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on APA Corporation 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 APA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of APA Corporation has no effect on the direction of Waste Management i.e., Waste Management and APA go up and down completely randomly.

Pair Corralation between Waste Management and APA

Assuming the 90 days trading horizon Waste Management is expected to under-perform the APA. But the stock apears to be less risky and, when comparing its historical volatility, Waste Management is 2.96 times less risky than APA. The stock trades about -0.02 of its potential returns per unit of risk. The APA Corporation is currently generating about 0.43 of returns per unit of risk over similar time horizon. If you would invest  12,454  in APA Corporation on October 25, 2024 and sell it today you would earn a total of  2,521  from holding APA Corporation or generate 20.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	88.89%
Values	Daily Returns

Waste Management  vs.  APA Corp.

Waste Management

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Waste Management may actually be approaching a critical reversion point that can send shares even higher in February 2025.

APA Corporation

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in APA Corporation are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, APA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Waste Management and APA

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

The idea behind Waste Management and APA Corporation 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..