Correlation Between Waste Management and Trupanion

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

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

Diversification Opportunities for Waste Management and Trupanion

0.71

Correlation Coefficient

Waste Management  Trupanion

Poor diversification

The 3 months correlation between Waste and Trupanion is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Trupanion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trupanion 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 Trupanion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trupanion has no effect on the direction of Waste Management i.e., Waste Management and Trupanion go up and down completely randomly.

Pair Corralation between Waste Management and Trupanion

Allowing for the 90-day total investment horizon Waste Management is expected to generate 4.45 times less return on investment than Trupanion. But when comparing it to its historical volatility, Waste Management is 2.68 times less risky than Trupanion. It trades about 0.07 of its potential returns per unit of risk. Trupanion is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,457  in Trupanion on September 12, 2024 and sell it today you would earn a total of  942.00  from holding Trupanion or generate 21.14% return on investment over 90 days.

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

Waste Management  vs.  Trupanion

Waste Management

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 5 (%) 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.

Trupanion

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trupanion are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Trupanion reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waste Management and Trupanion

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

The idea behind Waste Management and Trupanion 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.