Correlation Between Waste Management and General Motors

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

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

Diversification Opportunities for Waste Management and General Motors

-0.23

Correlation Coefficient

Waste Management  General Motors

Very good diversification

The 3 months correlation between Waste and General is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors 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 General Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Waste Management i.e., Waste Management and General Motors go up and down completely randomly.

Pair Corralation between Waste Management and General Motors

Assuming the 90 days trading horizon Waste Management is expected to generate 0.41 times more return on investment than General Motors. However, Waste Management is 2.43 times less risky than General Motors. It trades about 0.0 of its potential returns per unit of risk. General Motors is currently generating about -0.07 per unit of risk. If you would invest  68,095  in Waste Management on December 2, 2024 and sell it today you would lose (203.00) from holding Waste Management or give up 0.3% 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.  General Motors

Waste Management

Risk-Adjusted Performance

Very Weak

Over the last 90 days Waste Management has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, Waste Management is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Waste Management and General Motors

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

The idea behind Waste Management and General Motors 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.