Correlation Between Waste Management and Resources Connection

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

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

Diversification Opportunities for Waste Management and Resources Connection

-0.35

Correlation Coefficient

Waste Management  Resources Connection

Very good diversification

The 3 months correlation between Waste and Resources is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Resources Connection in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Resources Connection 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 Resources Connection. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Resources Connection has no effect on the direction of Waste Management i.e., Waste Management and Resources Connection go up and down completely randomly.

Pair Corralation between Waste Management and Resources Connection

Allowing for the 90-day total investment horizon Waste Management is expected to under-perform the Resources Connection. But the stock apears to be less risky and, when comparing its historical volatility, Waste Management is 1.72 times less risky than Resources Connection. The stock trades about -0.31 of its potential returns per unit of risk. The Resources Connection is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  826.00  in Resources Connection on September 20, 2024 and sell it today you would lose (16.00) from holding Resources Connection or give up 1.94% of portfolio value over 90 days.

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

Waste Management  vs.  Resources Connection

Waste Management

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 1 (%) 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 current stock price disarray, may contribute to short-term losses for the investors.

Resources Connection

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Resources Connection has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Waste Management and Resources Connection

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

The idea behind Waste Management and Resources Connection 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.