Correlation Between Waste Management and Bt Brands

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

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

Diversification Opportunities for Waste Management and Bt Brands

0.34

Correlation Coefficient

Waste Management  Bt Brands

Weak diversification

The 3 months correlation between Waste and BTBD is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Bt Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bt Brands 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 Bt Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bt Brands has no effect on the direction of Waste Management i.e., Waste Management and Bt Brands go up and down completely randomly.

Pair Corralation between Waste Management and Bt Brands

Allowing for the 90-day total investment horizon Waste Management is expected to generate 1.23 times less return on investment than Bt Brands. But when comparing it to its historical volatility, Waste Management is 5.39 times less risky than Bt Brands. It trades about 0.09 of its potential returns per unit of risk. Bt Brands is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  196.00  in Bt Brands on November 28, 2024 and sell it today you would lose (26.00) from holding Bt Brands or give up 13.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.69%
Values	Daily Returns

Waste Management  vs.  Bt Brands

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.

Bt Brands

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bt Brands are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Bt Brands exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waste Management and Bt Brands

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

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