Correlation Between Waste Management and BJs Restaurants

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

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

Diversification Opportunities for Waste Management and BJs Restaurants

0.45

Correlation Coefficient

Waste Management  BJs Restaurants

Very weak diversification

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

Pair Corralation between Waste Management and BJs Restaurants

Allowing for the 90-day total investment horizon Waste Management is expected to generate 0.42 times more return on investment than BJs Restaurants. However, Waste Management is 2.39 times less risky than BJs Restaurants. It trades about 0.09 of its potential returns per unit of risk. BJs Restaurants is currently generating about 0.03 per unit of risk. If you would invest  14,658  in Waste Management on November 28, 2024 and sell it today you would earn a total of  8,417  from holding Waste Management or generate 57.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Waste Management  vs.  BJs Restaurants

Waste Management

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 2 (%) 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.

BJs Restaurants

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, BJs Restaurants is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Waste Management and BJs Restaurants

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

The idea behind Waste Management and BJs Restaurants 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.