Correlation Between Waste Management and Fuel Tech

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

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

Diversification Opportunities for Waste Management and Fuel Tech

0.46

Correlation Coefficient

Waste Management  Fuel Tech

Very weak diversification

The 3 months correlation between Waste and Fuel is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Fuel Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuel Tech 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 Fuel Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuel Tech has no effect on the direction of Waste Management i.e., Waste Management and Fuel Tech go up and down completely randomly.

Pair Corralation between Waste Management and Fuel Tech

Allowing for the 90-day total investment horizon Waste Management is expected to under-perform the Fuel Tech. But the stock apears to be less risky and, when comparing its historical volatility, Waste Management is 2.79 times less risky than Fuel Tech. The stock trades about -0.12 of its potential returns per unit of risk. The Fuel Tech is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  122.00  in Fuel Tech on February 1, 2024 and sell it today you would earn a total of  4.00  from holding Fuel Tech or generate 3.28% return on investment over 90 days.

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

Waste Management  vs.  Fuel Tech

Waste Management

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Waste Management may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Fuel Tech

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fuel Tech are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Fuel Tech disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waste Management and Fuel Tech

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

The idea behind Waste Management and Fuel Tech 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.