Correlation Between WESTLAKE CHEMICAL and Waste Management

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

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

Diversification Opportunities for WESTLAKE CHEMICAL and Waste Management

-0.54

Correlation Coefficient

WESTLAKE CHEMICAL  Waste Management

Excellent diversification

The 3 months correlation between WESTLAKE and Waste is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding WESTLAKE CHEMICAL and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management and WESTLAKE CHEMICAL 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 WESTLAKE CHEMICAL are associated (or correlated) with Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of WESTLAKE CHEMICAL i.e., WESTLAKE CHEMICAL and Waste Management go up and down completely randomly.

Pair Corralation between WESTLAKE CHEMICAL and Waste Management

Assuming the 90 days trading horizon WESTLAKE CHEMICAL is expected to under-perform the Waste Management. In addition to that, WESTLAKE CHEMICAL is 1.06 times more volatile than Waste Management. It trades about -0.02 of its total potential returns per unit of risk. Waste Management is currently generating about 0.17 per unit of volatility. If you would invest  18,717  in Waste Management on September 4, 2024 and sell it today you would earn a total of  2,718  from holding Waste Management or generate 14.52% return on investment over 90 days.

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

WESTLAKE CHEMICAL  vs.  Waste Management

WESTLAKE CHEMICAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WESTLAKE CHEMICAL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, WESTLAKE CHEMICAL is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Waste Management

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with WESTLAKE CHEMICAL and Waste Management

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

The idea behind WESTLAKE CHEMICAL and Waste Management 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.