Correlation Between Phillips and Waste Management

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Can any of the company-specific risk be diversified away by investing in both Phillips 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 Phillips and Waste Management into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Phillips 66 and Waste Management, you can compare the effects of market volatilities on Phillips 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 Phillips with a short position of Waste Management. Check out your portfolio center. Please also check ongoing floating volatility patterns of Phillips and Waste Management.

Diversification Opportunities for Phillips and Waste Management

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Phillips and Waste is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Phillips 66 and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management and Phillips 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 Phillips 66 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 Phillips i.e., Phillips and Waste Management go up and down completely randomly.

Pair Corralation between Phillips and Waste Management

Considering the 90-day investment horizon Phillips 66 is expected to generate 2.96 times more return on investment than Waste Management. However, Phillips is 2.96 times more volatile than Waste Management. It trades about 0.55 of its potential returns per unit of risk. Waste Management is currently generating about 0.35 per unit of risk. If you would invest  14,124  in Phillips 66 on December 30, 2023 and sell it today you would earn a total of  2,210  from holding Phillips 66 or generate 15.65% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Phillips 66  vs.  Waste Management

 Performance 
       Timeline  
Phillips 66 

Risk-Adjusted Performance

19 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Phillips 66 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Phillips showed solid returns over the last few months and may actually be approaching a breakup point.
Waste Management 

Risk-Adjusted Performance

24 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting primary indicators, Waste Management displayed solid returns over the last few months and may actually be approaching a breakup point.

Phillips and Waste Management Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Phillips and Waste Management

The main advantage of trading using opposite Phillips and Waste Management positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Phillips 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 Phillips 66 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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