Correlation Between Waste Management and Associated British

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

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

Diversification Opportunities for Waste Management and Associated British

-0.36

Correlation Coefficient

Waste Management  Associated British

Very good diversification

The 3 months correlation between Waste and Associated is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Associated British Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Associated British Foods 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 Associated British. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Associated British Foods has no effect on the direction of Waste Management i.e., Waste Management and Associated British go up and down completely randomly.

Pair Corralation between Waste Management and Associated British

Assuming the 90 days trading horizon Waste Management is expected to generate 1.0 times more return on investment than Associated British. However, Waste Management is 1.0 times more volatile than Associated British Foods. It trades about 0.07 of its potential returns per unit of risk. Associated British Foods is currently generating about 0.03 per unit of risk. If you would invest  20,602  in Waste Management on September 12, 2024 and sell it today you would earn a total of  1,045  from holding Waste Management or generate 5.07% return on investment over 90 days.

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

Waste Management  vs.  Associated British Foods

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 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.

Associated British Foods

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Associated British Foods are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Associated British is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Waste Management and Associated British

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

The idea behind Waste Management and Associated British Foods 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.