Correlation Between Waste Management and Novartis

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

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

Diversification Opportunities for Waste Management and Novartis

-0.49

Correlation Coefficient

Waste Management  Novartis

Very good diversification

The 3 months correlation between Waste and Novartis is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Novartis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG 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 Novartis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novartis AG has no effect on the direction of Waste Management i.e., Waste Management and Novartis go up and down completely randomly.

Pair Corralation between Waste Management and Novartis

Assuming the 90 days trading horizon Waste Management is expected to generate 0.86 times more return on investment than Novartis. However, Waste Management is 1.16 times less risky than Novartis. It trades about 0.15 of its potential returns per unit of risk. Novartis AG is currently generating about -0.06 per unit of risk. If you would invest  57,818  in Waste Management on September 13, 2024 and sell it today you would earn a total of  7,918  from holding Waste Management or generate 13.69% return on investment over 90 days.

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

Waste Management  vs.  Novartis AG

Waste Management

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, Waste Management sustained solid returns over the last few months and may actually be approaching a breakup point.

Novartis AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novartis AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic 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 Novartis

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

The idea behind Waste Management and Novartis AG 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.