Correlation Between Waste Management and Automatic Data

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

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

Diversification Opportunities for Waste Management and Automatic Data

0.79

Correlation Coefficient

Waste Management  Automatic Data

Poor diversification

The 3 months correlation between Waste and Automatic is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing 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 Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of Waste Management i.e., Waste Management and Automatic Data go up and down completely randomly.

Pair Corralation between Waste Management and Automatic Data

Allowing for the 90-day total investment horizon Waste Management is expected to generate 1.1 times more return on investment than Automatic Data. However, Waste Management is 1.1 times more volatile than Automatic Data Processing. It trades about 0.18 of its potential returns per unit of risk. Automatic Data Processing is currently generating about 0.05 per unit of risk. If you would invest  20,152  in Waste Management on December 28, 2024 and sell it today you would earn a total of  2,640  from holding Waste Management or generate 13.1% return on investment over 90 days.

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

Waste Management  vs.  Automatic Data Processing

Waste Management

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Waste Management displayed solid returns over the last few months and may actually be approaching a breakup point.

Automatic Data Processing

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, Automatic Data is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Waste Management and Automatic Data

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

The idea behind Waste Management and Automatic Data Processing 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.