Correlation Between Waste Management and Southwest Gas
Can any of the company-specific risk be diversified away by investing in both Waste Management and Southwest Gas 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 Southwest Gas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Waste Management and Southwest Gas Holdings, you can compare the effects of market volatilities on Waste Management and Southwest Gas 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 Southwest Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Waste Management and Southwest Gas.
Diversification Opportunities for Waste Management and Southwest Gas
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Waste and Southwest is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Southwest Gas Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Gas Holdings 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 Southwest Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Gas Holdings has no effect on the direction of Waste Management i.e., Waste Management and Southwest Gas go up and down completely randomly.
Pair Corralation between Waste Management and Southwest Gas
Allowing for the 90-day total investment horizon Waste Management is expected to generate 1.17 times less return on investment than Southwest Gas. But when comparing it to its historical volatility, Waste Management is 1.79 times less risky than Southwest Gas. It trades about 0.33 of its potential returns per unit of risk. Southwest Gas Holdings is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 7,299 in Southwest Gas Holdings on August 31, 2024 and sell it today you would earn a total of 531.00 from holding Southwest Gas Holdings or generate 7.27% 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. Southwest Gas Holdings
Performance |
| Timeline |
| Waste Management |
| Southwest Gas Holdings |
Waste Management and Southwest Gas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Waste Management and Southwest Gas
The main advantage of trading using opposite Waste Management and Southwest Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Waste Management position performs unexpectedly, Southwest Gas 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 Southwest Gas will offset losses from the drop in Southwest Gas' long position.| Waste Management vs. Waste Connections | Waste Management vs. Clean Harbors | Waste Management vs. Casella Waste Systems | Waste Management vs. Gfl Environmental Holdings |
| Southwest Gas vs. NewJersey Resources | Southwest Gas vs. Northwest Natural Gas | Southwest Gas vs. NorthWestern | Southwest Gas vs. Chesapeake Utilities |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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