Correlation Between InPlay Oil and UNITED RENTALS

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

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

Diversification Opportunities for InPlay Oil and UNITED RENTALS

0.09

Correlation Coefficient

InPlay Oil  UNITED RENTALS

Significant diversification

The 3 months correlation between InPlay and UNITED is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding InPlay Oil Corp and UNITED RENTALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITED RENTALS and InPlay Oil 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 InPlay Oil Corp are associated (or correlated) with UNITED RENTALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNITED RENTALS has no effect on the direction of InPlay Oil i.e., InPlay Oil and UNITED RENTALS go up and down completely randomly.

Pair Corralation between InPlay Oil and UNITED RENTALS

Assuming the 90 days trading horizon InPlay Oil Corp is expected to under-perform the UNITED RENTALS. But the stock apears to be less risky and, when comparing its historical volatility, InPlay Oil Corp is 1.04 times less risky than UNITED RENTALS. The stock trades about -0.05 of its potential returns per unit of risk. The UNITED RENTALS is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  67,688  in UNITED RENTALS on October 22, 2024 and sell it today you would earn a total of  5,552  from holding UNITED RENTALS or generate 8.2% return on investment over 90 days.

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

InPlay Oil Corp  vs.  UNITED RENTALS

InPlay Oil Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days InPlay Oil Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

UNITED RENTALS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UNITED RENTALS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, UNITED RENTALS is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with InPlay Oil and UNITED RENTALS

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

The idea behind InPlay Oil Corp and UNITED RENTALS 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.