Correlation Between Waste Management and Four Seasons

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

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

Diversification Opportunities for Waste Management and Four Seasons

-0.2

Correlation Coefficient

Waste Management  Four Seasons

Good diversification

The 3 months correlation between Waste and Four is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Four Seasons Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Four Seasons Education 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 Four Seasons. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Four Seasons Education has no effect on the direction of Waste Management i.e., Waste Management and Four Seasons go up and down completely randomly.

Pair Corralation between Waste Management and Four Seasons

Allowing for the 90-day total investment horizon Waste Management is expected to generate 97.37 times less return on investment than Four Seasons. But when comparing it to its historical volatility, Waste Management is 2.94 times less risky than Four Seasons. It trades about 0.0 of its potential returns per unit of risk. Four Seasons Education is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,001  in Four Seasons Education on September 22, 2024 and sell it today you would earn a total of  70.00  from holding Four Seasons Education or generate 6.99% 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.  Four Seasons Education

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 very healthy primary indicators, Waste Management is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Four Seasons Education

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Four Seasons Education are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Four Seasons may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Waste Management and Four Seasons

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

The idea behind Waste Management and Four Seasons Education 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.