Correlation Between Waste Management and Knife River

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

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

Diversification Opportunities for Waste Management and Knife River

-0.52

Correlation Coefficient

Waste Management  Knife River

Excellent diversification

The 3 months correlation between Waste and Knife is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Knife River in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knife River 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 Knife River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knife River has no effect on the direction of Waste Management i.e., Waste Management and Knife River go up and down completely randomly.

Pair Corralation between Waste Management and Knife River

Allowing for the 90-day total investment horizon Waste Management is expected to generate 0.42 times more return on investment than Knife River. However, Waste Management is 2.4 times less risky than Knife River. It trades about 0.18 of its potential returns per unit of risk. Knife River is currently generating about -0.03 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Waste Management  vs.  Knife River

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.

Knife River

Risk-Adjusted Performance

Very Weak

Over the last 90 days Knife River has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Knife River is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Waste Management and Knife River

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

The idea behind Waste Management and Knife River 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.