Correlation Between Waste Connections and Stericycle

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

By analyzing existing cross correlation between Waste Connections and Stericycle, you can compare the effects of market volatilities on Waste Connections and Stericycle 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 Connections with a short position of Stericycle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Waste Connections and Stericycle.

Diversification Opportunities for Waste Connections and Stericycle

0.6

Correlation Coefficient

Waste Connections  Stericycle

Poor diversification

The 3 months correlation between Waste and Stericycle is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Waste Connections and Stericycle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stericycle and Waste Connections 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 Connections are associated (or correlated) with Stericycle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stericycle has no effect on the direction of Waste Connections i.e., Waste Connections and Stericycle go up and down completely randomly.

Pair Corralation between Waste Connections and Stericycle

Considering the 90-day investment horizon Waste Connections is expected to generate 9.15 times less return on investment than Stericycle. But when comparing it to its historical volatility, Waste Connections is 4.36 times less risky than Stericycle. It trades about 0.07 of its potential returns per unit of risk. Stericycle is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  5,905  in Stericycle on September 1, 2024 and sell it today you would earn a total of  1,945  from holding Stericycle or generate 32.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	80.95%
Values	Daily Returns

Waste Connections  vs.  Stericycle

Waste Connections

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Connections are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Waste Connections is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Stericycle

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Stericycle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite inconsistent fundamental indicators, Stericycle disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waste Connections and Stericycle

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

The idea behind Waste Connections and Stericycle 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.