Correlation Between Waste Management and IRB Brasil

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

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

Diversification Opportunities for Waste Management and IRB Brasil

0.21

Correlation Coefficient

Waste Management  IRB Brasil

Modest diversification

The 3 months correlation between Waste and IRB is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and IRB Brasil Resseguros SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IRB Brasil Resseguros 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 IRB Brasil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IRB Brasil Resseguros has no effect on the direction of Waste Management i.e., Waste Management and IRB Brasil go up and down completely randomly.

Pair Corralation between Waste Management and IRB Brasil

Assuming the 90 days trading horizon Waste Management is expected to generate 5.56 times less return on investment than IRB Brasil. But when comparing it to its historical volatility, Waste Management is 3.43 times less risky than IRB Brasil. It trades about 0.07 of its potential returns per unit of risk. IRB Brasil Resseguros SA is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,245  in IRB Brasil Resseguros SA on December 30, 2024 and sell it today you would earn a total of  976.00  from holding IRB Brasil Resseguros SA or generate 22.99% return on investment over 90 days.

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

Waste Management  vs.  IRB Brasil Resseguros SA

Waste Management

Risk-Adjusted Performance

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 current stock price disturbance, may contribute to short-term losses for the investors.

IRB Brasil Resseguros

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IRB Brasil Resseguros SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IRB Brasil unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waste Management and IRB Brasil

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

The idea behind Waste Management and IRB Brasil Resseguros SA 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.