Correlation Between Waste Management and Invitation Homes

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

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

Diversification Opportunities for Waste Management and Invitation Homes

0.18

Correlation Coefficient

Waste Management  Invitation Homes

Average diversification

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

Pair Corralation between Waste Management and Invitation Homes

Assuming the 90 days trading horizon Waste Management is expected to under-perform the Invitation Homes. In addition to that, Waste Management is 1.07 times more volatile than Invitation Homes. It trades about -0.23 of its total potential returns per unit of risk. Invitation Homes is currently generating about -0.24 per unit of volatility. If you would invest  4,000  in Invitation Homes on October 11, 2024 and sell it today you would lose (111.00) from holding Invitation Homes or give up 2.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	66.67%
Values	Daily Returns

Waste Management  vs.  Invitation Homes

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.

Invitation Homes

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Waste Management and Invitation Homes

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

The idea behind Waste Management and Invitation Homes 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.