Correlation Between Clean Harbors and ABM Industries

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

By analyzing existing cross correlation between Clean Harbors and ABM Industries Incorporated, you can compare the effects of market volatilities on Clean Harbors and ABM 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 Clean Harbors with a short position of ABM Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Clean Harbors and ABM Industries.

Diversification Opportunities for Clean Harbors and ABM Industries

0.89

Correlation Coefficient

Clean Harbors  ABM Industries

Very poor diversification

The 3 months correlation between Clean and ABM is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Clean Harbors and ABM Industries Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABM Industries and Clean Harbors 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 Clean Harbors are associated (or correlated) with ABM Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABM Industries has no effect on the direction of Clean Harbors i.e., Clean Harbors and ABM Industries go up and down completely randomly.

Pair Corralation between Clean Harbors and ABM Industries

Considering the 90-day investment horizon Clean Harbors is expected to generate 1.61 times more return on investment than ABM Industries. However, Clean Harbors is 1.61 times more volatile than ABM Industries Incorporated. It trades about 0.25 of its potential returns per unit of risk. ABM Industries Incorporated is currently generating about 0.25 per unit of risk. If you would invest  19,600  in Clean Harbors on February 24, 2024 and sell it today you would earn a total of  1,926  from holding Clean Harbors or generate 9.83% return on investment over 90 days.

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

Clean Harbors  vs.  ABM Industries Incorporated

Clean Harbors

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Clean Harbors are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating essential indicators, Clean Harbors demonstrated solid returns over the last few months and may actually be approaching a breakup point.

ABM Industries

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ABM Industries Incorporated are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, ABM Industries displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Clean Harbors and ABM Industries

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

The idea behind Clean Harbors and ABM Industries Incorporated 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.