Correlation Between British American and United Rentals
Can any of the company-specific risk be diversified away by investing in both British American 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 British American and United Rentals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and United Rentals, you can compare the effects of market volatilities on British American 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 British American with a short position of United Rentals. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and United Rentals.
Diversification Opportunities for British American and United Rentals
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between British and United is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and United Rentals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Rentals and British American 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 British American Tobacco 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 British American i.e., British American and United Rentals go up and down completely randomly.
Pair Corralation between British American and United Rentals
Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.47 times more return on investment than United Rentals. However, British American Tobacco is 2.14 times less risky than United Rentals. It trades about 0.18 of its potential returns per unit of risk. United Rentals is currently generating about 0.07 per unit of risk. If you would invest 4,070 in British American Tobacco on September 18, 2024 and sell it today you would earn a total of 545.00 from holding British American Tobacco or generate 13.39% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
British American Tobacco vs. United Rentals
Performance |
Timeline |
British American Tobacco |
United Rentals |
British American and United Rentals Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with British American and United Rentals
The main advantage of trading using opposite British American and United Rentals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American 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' long position.British American vs. MAHLE Metal Leve | British American vs. G2D Investments | British American vs. Spotify Technology SA | British American vs. Costco Wholesale |
United Rentals vs. United States Steel | United Rentals vs. Bread Financial Holdings | United Rentals vs. Agilent Technologies | United Rentals vs. Unity Software |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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