Correlation Between Waste Management and BacTech Environmental

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

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

Diversification Opportunities for Waste Management and BacTech Environmental

-0.45

Correlation Coefficient

Waste Management  BacTech Environmental

Very good diversification

The 3 months correlation between Waste and BacTech is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and BacTech Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BacTech Environmental 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 BacTech Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BacTech Environmental has no effect on the direction of Waste Management i.e., Waste Management and BacTech Environmental go up and down completely randomly.

Pair Corralation between Waste Management and BacTech Environmental

Allowing for the 90-day total investment horizon Waste Management is expected to generate 0.12 times more return on investment than BacTech Environmental. However, Waste Management is 8.04 times less risky than BacTech Environmental. It trades about 0.03 of its potential returns per unit of risk. BacTech Environmental is currently generating about 0.0 per unit of risk. If you would invest  20,495  in Waste Management on September 15, 2024 and sell it today you would earn a total of  825.00  from holding Waste Management or generate 4.03% 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.  BacTech Environmental

Waste Management

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Waste Management is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BacTech Environmental

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BacTech Environmental are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, BacTech Environmental reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waste Management and BacTech Environmental

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

The idea behind Waste Management and BacTech Environmental 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.