Correlation Between Waste Management and Travel Leisure

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

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

Diversification Opportunities for Waste Management and Travel Leisure

0.62

Correlation Coefficient

Waste Management  Travel Leisure

Poor diversification

The 3 months correlation between Waste and Travel is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Travel Leisure Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Travel Leisure 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 Travel Leisure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Travel Leisure has no effect on the direction of Waste Management i.e., Waste Management and Travel Leisure go up and down completely randomly.

Pair Corralation between Waste Management and Travel Leisure

Assuming the 90 days trading horizon Waste Management is expected to under-perform the Travel Leisure. But the stock apears to be less risky and, when comparing its historical volatility, Waste Management is 10.55 times less risky than Travel Leisure. The stock trades about -0.03 of its potential returns per unit of risk. The Travel Leisure Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,715  in Travel Leisure Co on September 21, 2024 and sell it today you would earn a total of  100.00  from holding Travel Leisure Co or generate 1.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.07%
Values	Daily Returns

Waste Management  vs.  Travel Leisure Co

Waste Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Waste Management has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Travel Leisure

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Travel Leisure Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Travel Leisure unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waste Management and Travel Leisure

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

The idea behind Waste Management and Travel Leisure Co 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.