Correlation Between Waste Management and ABM Industries

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

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

Diversification Opportunities for Waste Management and ABM Industries

0.73

Correlation Coefficient

Waste Management  ABM Industries

Poor diversification

The 3 months correlation between Waste and ABM is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and ABM Industries Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABM Industries 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 ABM Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABM Industries has no effect on the direction of Waste Management i.e., Waste Management and ABM Industries go up and down completely randomly.

Pair Corralation between Waste Management and ABM Industries

Allowing for the 90-day total investment horizon Waste Management is expected to generate 0.61 times more return on investment than ABM Industries. However, Waste Management is 1.63 times less risky than ABM Industries. It trades about 0.11 of its potential returns per unit of risk. ABM Industries Incorporated is currently generating about 0.01 per unit of risk. If you would invest  21,127  in Waste Management on August 30, 2024 and sell it today you would earn a total of  1,719  from holding Waste Management or generate 8.14% return on investment over 90 days.

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

Waste Management  vs.  ABM Industries Incorporated

Waste Management

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent primary indicators, Waste Management may actually be approaching a critical reversion point that can send shares even higher in December 2024.

ABM Industries

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days ABM Industries Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, ABM Industries is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Waste Management and ABM Industries

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

The idea behind Waste Management and ABM Industries Incorporated 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.