Correlation Between Waste Management and Bank of New York

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

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

Diversification Opportunities for Waste Management and Bank of New York

0.8

Correlation Coefficient

Waste Management  Bank of New York

Very poor diversification

The 3 months correlation between Waste and Bank is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Bank of New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of New York 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 Bank of New York. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of New York has no effect on the direction of Waste Management i.e., Waste Management and Bank of New York go up and down completely randomly.

Pair Corralation between Waste Management and Bank of New York

Allowing for the 90-day total investment horizon Waste Management is expected to generate 81.62 times less return on investment than Bank of New York. But when comparing it to its historical volatility, Waste Management is 1.03 times less risky than Bank of New York. It trades about 0.0 of its potential returns per unit of risk. Bank of New is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  7,170  in Bank of New on September 21, 2024 and sell it today you would earn a total of  593.00  from holding Bank of New or generate 8.27% return on investment over 90 days.

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

Waste Management  vs.  Bank of New

Waste Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Waste Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Waste Management is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Bank of New York

Risk-Adjusted Performance

9 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of New are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain forward-looking signals, Bank of New York may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Waste Management and Bank of New York

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

The idea behind Waste Management and Bank of New 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.