Correlation Between Waste Management and Phillips

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

By analyzing existing cross correlation between Waste Management and Phillips 66, you can compare the effects of market volatilities on Waste Management and Phillips 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 Phillips. Check out your portfolio center. Please also check ongoing floating volatility patterns of Waste Management and Phillips.

Diversification Opportunities for Waste Management and Phillips

0.5

Correlation Coefficient

Waste Management  Phillips

Very weak diversification

The 3 months correlation between Waste and Phillips is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Phillips 66 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phillips 66 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 Phillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phillips 66 has no effect on the direction of Waste Management i.e., Waste Management and Phillips go up and down completely randomly.

Pair Corralation between Waste Management and Phillips

Assuming the 90 days trading horizon Waste Management is expected to generate 0.45 times more return on investment than Phillips. However, Waste Management is 2.21 times less risky than Phillips. It trades about -0.36 of its potential returns per unit of risk. Phillips 66 is currently generating about -0.25 per unit of risk. If you would invest  67,686  in Waste Management on September 29, 2024 and sell it today you would lose (4,371) from holding Waste Management or give up 6.46% of portfolio value over 90 days.

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

Waste Management  vs.  Phillips 66

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.

Phillips 66

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Phillips 66 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Phillips 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 Phillips

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

The idea behind Waste Management and Phillips 66 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.