Correlation Between Stericycle and Waste Management

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

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

Diversification Opportunities for Stericycle and Waste Management

0.72

Correlation Coefficient

Stericycle  Waste Management

Poor diversification

The 3 months correlation between Stericycle and Waste is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Stericycle and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management 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 Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of Stericycle i.e., Stericycle and Waste Management go up and down completely randomly.

Pair Corralation between Stericycle and Waste Management

Given the investment horizon of 90 days Stericycle is expected to under-perform the Waste Management. In addition to that, Stericycle is 1.78 times more volatile than Waste Management. It trades about -0.22 of its total potential returns per unit of risk. Waste Management is currently generating about -0.07 per unit of volatility. If you would invest  21,177  in Waste Management on January 25, 2024 and sell it today you would lose (222.00) from holding Waste Management or give up 1.05% of portfolio value over 90 days.

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

Stericycle  vs.  Waste Management

Stericycle

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Stericycle are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 Management

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Waste Management displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stericycle and Waste Management

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

The idea behind Stericycle and Waste Management 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.