Correlation Between Waste Management and STMicroelectronics

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

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

Diversification Opportunities for Waste Management and STMicroelectronics

-0.31

Correlation Coefficient

Waste Management  STMicroelectronics

Very good diversification

The 3 months correlation between Waste and STMicroelectronics is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics 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 STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of Waste Management i.e., Waste Management and STMicroelectronics go up and down completely randomly.

Pair Corralation between Waste Management and STMicroelectronics

Assuming the 90 days trading horizon Waste Management is expected to generate 0.82 times more return on investment than STMicroelectronics. However, Waste Management is 1.22 times less risky than STMicroelectronics. It trades about -0.23 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.26 per unit of risk. If you would invest  65,736  in Waste Management on October 11, 2024 and sell it today you would lose (2,836) from holding Waste Management or give up 4.31% 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.  STMicroelectronics NV

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.

STMicroelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Waste Management and STMicroelectronics NV 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.