Correlation Between Waste Management and Air Products
Can any of the company-specific risk be diversified away by investing in both Waste Management and Air Products 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 Air Products into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Waste Management and Air Products Chemicals, you can compare the effects of market volatilities on Waste Management and Air Products 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 Air Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of Waste Management and Air Products.
Diversification Opportunities for Waste Management and Air Products
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Waste and Air is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Air Products Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products Chemicals 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 Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products Chemicals has no effect on the direction of Waste Management i.e., Waste Management and Air Products go up and down completely randomly.
Pair Corralation between Waste Management and Air Products
Assuming the 90 days trading horizon Waste Management is expected to generate 1.67 times less return on investment than Air Products. But when comparing it to its historical volatility, Waste Management is 1.3 times less risky than Air Products. It trades about 0.41 of its potential returns per unit of risk. Air Products Chemicals is currently generating about 0.53 of returns per unit of risk over similar time horizon. If you would invest 28,390 in Air Products Chemicals on November 3, 2024 and sell it today you would earn a total of 5,190 from holding Air Products Chemicals or generate 18.28% 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. Air Products Chemicals
Performance |
| Timeline |
| Waste Management |
| Air Products Chemicals |
Waste Management and Air Products Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Waste Management and Air Products
The main advantage of trading using opposite Waste Management and Air Products positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Waste Management position performs unexpectedly, Air Products 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 Air Products will offset losses from the drop in Air Products' long position.| Waste Management vs. Iron Mountain | Waste Management vs. Compal Electronics GDR | Waste Management vs. Cellnex Telecom SA | Waste Management vs. Seche Environnement SA |
| Air Products vs. National Beverage Corp | Air Products vs. Associated British Foods | Air Products vs. CAP LEASE AVIATION | Air Products vs. Geely Automobile Holdings |
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 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.
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