Correlation Between Stericycle and Waste Connections

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

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

Diversification Opportunities for Stericycle and Waste Connections

0.75

Correlation Coefficient

Stericycle  Waste Connections

Poor diversification

The 3 months correlation between Stericycle and Waste is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Stericycle and Waste Connections in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Connections and Stericycle 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 Stericycle are associated (or correlated) with Waste Connections. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Connections has no effect on the direction of Stericycle i.e., Stericycle and Waste Connections go up and down completely randomly.

Pair Corralation between Stericycle and Waste Connections

Given the investment horizon of 90 days Stericycle is expected to generate 2.34 times less return on investment than Waste Connections. In addition to that, Stericycle is 1.53 times more volatile than Waste Connections. It trades about 0.01 of its total potential returns per unit of risk. Waste Connections is currently generating about 0.04 per unit of volatility. If you would invest  13,259  in Waste Connections on January 20, 2024 and sell it today you would earn a total of  3,243  from holding Waste Connections or generate 24.46% return on investment over 90 days.

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

Stericycle  vs.  Waste Connections

Stericycle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stericycle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Stericycle is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Waste Connections

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Connections are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Waste Connections may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Stericycle and Waste Connections

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

The idea behind Stericycle and Waste Connections 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.