Correlation Between Waste Management and Bath Body

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

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

Diversification Opportunities for Waste Management and Bath Body

0.52

Correlation Coefficient

Waste Management  Bath Body

Very weak diversification

The 3 months correlation between Waste and Bath is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Bath Body Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bath Body Works 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 Bath Body. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bath Body Works has no effect on the direction of Waste Management i.e., Waste Management and Bath Body go up and down completely randomly.

Pair Corralation between Waste Management and Bath Body

Assuming the 90 days trading horizon Waste Management is expected to generate 0.4 times more return on investment than Bath Body. However, Waste Management is 2.52 times less risky than Bath Body. It trades about 0.11 of its potential returns per unit of risk. Bath Body Works is currently generating about 0.02 per unit of risk. If you would invest  44,201  in Waste Management on October 9, 2024 and sell it today you would earn a total of  18,047  from holding Waste Management or generate 40.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	69.17%
Values	Daily Returns

Waste Management  vs.  Bath Body Works

Waste Management

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, Waste Management is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Bath Body Works

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bath Body Works are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Bath Body sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waste Management and Bath Body

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

The idea behind Waste Management and Bath Body Works 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.