Correlation Between Custom Truck and United Rentals

Can any of the company-specific risk be diversified away by investing in both Custom Truck 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 Custom Truck and United Rentals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Custom Truck One and United Rentals, you can compare the effects of market volatilities on Custom Truck 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 Custom Truck with a short position of United Rentals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Custom Truck and United Rentals.

Diversification Opportunities for Custom Truck and United Rentals

0.54

Correlation Coefficient

Custom Truck  United Rentals

Very weak diversification

The 3 months correlation between Custom and United is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Custom Truck One and United Rentals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Rentals and Custom Truck 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 Custom Truck One 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 Custom Truck i.e., Custom Truck and United Rentals go up and down completely randomly.

Pair Corralation between Custom Truck and United Rentals

Given the investment horizon of 90 days Custom Truck One is expected to under-perform the United Rentals. In addition to that, Custom Truck is 1.5 times more volatile than United Rentals. It trades about -0.01 of its total potential returns per unit of risk. United Rentals is currently generating about 0.07 per unit of volatility. If you would invest  56,537  in United Rentals on September 17, 2024 and sell it today you would earn a total of  21,345  from holding United Rentals or generate 37.75% return on investment over 90 days.

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

Custom Truck One  vs.  United Rentals

Custom Truck One

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Custom Truck One are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Custom Truck unveiled solid returns over the last few months and may actually be approaching a breakup point.

United Rentals

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Rentals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, United Rentals is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Custom Truck and United Rentals

The main advantage of trading using opposite Custom Truck and United Rentals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Custom Truck 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.

The idea behind Custom Truck One 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.