Correlation Between Waste Management and BW Offshore

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

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

Diversification Opportunities for Waste Management and BW Offshore

0.03

Correlation Coefficient

Waste Management  BW Offshore

Significant diversification

The 3 months correlation between Waste and BWOFY is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and BW Offshore Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Offshore Limited 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 BW Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Offshore Limited has no effect on the direction of Waste Management i.e., Waste Management and BW Offshore go up and down completely randomly.

Pair Corralation between Waste Management and BW Offshore

Allowing for the 90-day total investment horizon Waste Management is expected to under-perform the BW Offshore. But the stock apears to be less risky and, when comparing its historical volatility, Waste Management is 1.47 times less risky than BW Offshore. The stock trades about -0.04 of its potential returns per unit of risk. The BW Offshore Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  504.00  in BW Offshore Limited on October 12, 2024 and sell it today you would earn a total of  51.00  from holding BW Offshore Limited or generate 10.12% return on investment over 90 days.

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

Waste Management  vs.  BW Offshore Limited

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 recent stock price disarray, may contribute to short-term losses for the investors.

BW Offshore Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BW Offshore Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, BW Offshore may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Waste Management and BW Offshore

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

The idea behind Waste Management and BW Offshore Limited 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.