Correlation Between Waste Management and Genpact

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

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

Diversification Opportunities for Waste Management and Genpact

0.84

Correlation Coefficient

Waste Management  Genpact

Very poor diversification

The 3 months correlation between Waste and Genpact is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Genpact Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genpact Limited 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 Genpact. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genpact Limited has no effect on the direction of Waste Management i.e., Waste Management and Genpact go up and down completely randomly.

Pair Corralation between Waste Management and Genpact

Allowing for the 90-day total investment horizon Waste Management is expected to generate 2.21 times less return on investment than Genpact. But when comparing it to its historical volatility, Waste Management is 1.46 times less risky than Genpact. It trades about 0.11 of its potential returns per unit of risk. Genpact Limited is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,908  in Genpact Limited on August 30, 2024 and sell it today you would earn a total of  741.00  from holding Genpact Limited or generate 18.96% return on investment over 90 days.

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

Waste Management  vs.  Genpact Limited

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 fragile primary indicators, Waste Management may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Genpact Limited

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Genpact Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Genpact reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waste Management and Genpact

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

The idea behind Waste Management and Genpact Limited 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.