Correlation Between Waste Management and Alliance Data

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

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

Diversification Opportunities for Waste Management and Alliance Data

0.81

Correlation Coefficient

Waste Management  Alliance Data

Very poor diversification

The 3 months correlation between Waste and Alliance is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Alliance Data Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Data Systems 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 Alliance Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Data Systems has no effect on the direction of Waste Management i.e., Waste Management and Alliance Data go up and down completely randomly.

Pair Corralation between Waste Management and Alliance Data

Assuming the 90 days trading horizon Waste Management is expected to generate 8.47 times less return on investment than Alliance Data. But when comparing it to its historical volatility, Waste Management is 2.75 times less risky than Alliance Data. It trades about 0.05 of its potential returns per unit of risk. Alliance Data Systems is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  4,751  in Alliance Data Systems on September 12, 2024 and sell it today you would earn a total of  1,727  from holding Alliance Data Systems or generate 36.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.92%
Values	Daily Returns

Waste Management  vs.  Alliance Data Systems

Waste Management

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Waste Management is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Alliance Data Systems

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waste Management and Alliance Data

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

The idea behind Waste Management and Alliance Data Systems 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.