Correlation Between Waste Management and Clean Harbors

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

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

Diversification Opportunities for Waste Management and Clean Harbors

-0.6

Correlation Coefficient

Waste Management  Clean Harbors

Excellent diversification

The 3 months correlation between Waste and Clean is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Clean Harbors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Harbors 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 Clean Harbors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Harbors has no effect on the direction of Waste Management i.e., Waste Management and Clean Harbors go up and down completely randomly.

Pair Corralation between Waste Management and Clean Harbors

Allowing for the 90-day total investment horizon Waste Management is expected to generate 0.76 times more return on investment than Clean Harbors. However, Waste Management is 1.32 times less risky than Clean Harbors. It trades about 0.18 of its potential returns per unit of risk. Clean Harbors is currently generating about -0.14 per unit of risk. If you would invest  20,327  in Waste Management on December 27, 2024 and sell it today you would earn a total of  2,566  from holding Waste Management or generate 12.62% return on investment over 90 days.

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

Waste Management  vs.  Clean Harbors

Waste Management

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Waste Management displayed solid returns over the last few months and may actually be approaching a breakup point.

Clean Harbors

Risk-Adjusted Performance

Very Weak

Over the last 90 days Clean Harbors has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Waste Management and Clean Harbors

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

The idea behind Waste Management and Clean Harbors 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.