Correlation Between Waste Management and Veolia Environnement

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

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

Diversification Opportunities for Waste Management and Veolia Environnement

-0.13

Correlation Coefficient

Waste Management  Veolia Environnement

Good diversification

The 3 months correlation between Waste and Veolia is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Veolia Environnement SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veolia Environnement 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 Veolia Environnement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veolia Environnement has no effect on the direction of Waste Management i.e., Waste Management and Veolia Environnement go up and down completely randomly.

Pair Corralation between Waste Management and Veolia Environnement

Allowing for the 90-day total investment horizon Waste Management is expected to generate 0.75 times more return on investment than Veolia Environnement. However, Waste Management is 1.33 times less risky than Veolia Environnement. It trades about 0.13 of its potential returns per unit of risk. Veolia Environnement SA is currently generating about 0.03 per unit of risk. If you would invest  15,950  in Waste Management on January 25, 2024 and sell it today you would earn a total of  5,005  from holding Waste Management or generate 31.38% return on investment over 90 days.

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

Waste Management  vs.  Veolia Environnement SA

Waste Management

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 16 (%) 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.

Veolia Environnement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Veolia Environnement SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Veolia Environnement is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Waste Management and Veolia Environnement

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

The idea behind Waste Management and Veolia Environnement SA 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.