Correlation Between Waste Management and NL Industries

Can any of the company-specific risk be diversified away by investing in both Waste Management and NL 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 NL 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 NL Industries, you can compare the effects of market volatilities on Waste Management and NL 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 NL Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Waste Management and NL Industries.

Diversification Opportunities for Waste Management and NL Industries

0.66

Correlation Coefficient

Waste Management  NL Industries

Poor diversification

The 3 months correlation between Waste and NL Industries is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL 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 NL Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NL Industries has no effect on the direction of Waste Management i.e., Waste Management and NL Industries go up and down completely randomly.

Pair Corralation between Waste Management and NL Industries

Allowing for the 90-day total investment horizon Waste Management is expected to generate 1.59 times less return on investment than NL Industries. But when comparing it to its historical volatility, Waste Management is 2.58 times less risky than NL Industries. It trades about 0.09 of its potential returns per unit of risk. NL Industries is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  677.00  in NL Industries on September 1, 2024 and sell it today you would earn a total of  118.00  from holding NL Industries or generate 17.43% 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.  NL Industries

Waste Management

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 10 (%) 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.

NL Industries

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile essential indicators, NL Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waste Management and NL Industries

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

The idea behind Waste Management and NL Industries 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.