Correlation Between Waste Management and BP Plc

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

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

Diversification Opportunities for Waste Management and BP Plc

-0.87

Correlation Coefficient

Waste Management  BP Plc

Pay attention - limited upside

The 3 months correlation between Waste and BP-A is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc 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 BP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP plc has no effect on the direction of Waste Management i.e., Waste Management and BP Plc go up and down completely randomly.

Pair Corralation between Waste Management and BP Plc

Assuming the 90 days trading horizon Waste Management is expected to generate 0.96 times more return on investment than BP Plc. However, Waste Management is 1.04 times less risky than BP Plc. It trades about 0.05 of its potential returns per unit of risk. BP plc is currently generating about -0.12 per unit of risk. If you would invest  20,725  in Waste Management on September 13, 2024 and sell it today you would earn a total of  719.00  from holding Waste Management or generate 3.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Waste Management  vs.  BP plc

Waste Management

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 3 (%) 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.

BP plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Waste Management and BP Plc

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

The idea behind Waste Management and BP plc 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.