Correlation Between Waste Management and Montrose Environmental

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

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

Diversification Opportunities for Waste Management and Montrose Environmental

0.52

Correlation Coefficient

Waste Management  Montrose Environmental

Very weak diversification

The 3 months correlation between Waste and Montrose is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Waste Management and Montrose Environmental Grp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Montrose Environmental 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 Montrose Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Montrose Environmental has no effect on the direction of Waste Management i.e., Waste Management and Montrose Environmental go up and down completely randomly.

Pair Corralation between Waste Management and Montrose Environmental

Allowing for the 90-day total investment horizon Waste Management is expected to generate 4.03 times less return on investment than Montrose Environmental. But when comparing it to its historical volatility, Waste Management is 5.18 times less risky than Montrose Environmental. It trades about 0.17 of its potential returns per unit of risk. Montrose Environmental Grp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,116  in Montrose Environmental Grp on February 5, 2024 and sell it today you would earn a total of  1,335  from holding Montrose Environmental Grp or generate 42.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Waste Management  vs.  Montrose Environmental Grp

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 unfluctuating primary indicators, Waste Management may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Montrose Environmental

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Montrose Environmental Grp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Montrose Environmental reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waste Management and Montrose Environmental

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

The idea behind Waste Management and Montrose Environmental Grp 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..