Correlation Between Hitachi Construction and United Rentals

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

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

Diversification Opportunities for Hitachi Construction and United Rentals

-0.25

Correlation Coefficient

Hitachi Construction  United Rentals

Very good diversification

The 3 months correlation between Hitachi and United is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and United Rentals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Rentals and Hitachi Construction 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 Hitachi Construction Machinery 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 Hitachi Construction i.e., Hitachi Construction and United Rentals go up and down completely randomly.

Pair Corralation between Hitachi Construction and United Rentals

Assuming the 90 days horizon Hitachi Construction is expected to generate 9.15 times less return on investment than United Rentals. But when comparing it to its historical volatility, Hitachi Construction Machinery is 1.24 times less risky than United Rentals. It trades about 0.01 of its potential returns per unit of risk. United Rentals is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  32,285  in United Rentals on September 7, 2024 and sell it today you would earn a total of  49,055  from holding United Rentals or generate 151.94% return on investment over 90 days.

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

Hitachi Construction Machinery  vs.  United Rentals

Hitachi Construction

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi Construction Machinery are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Hitachi Construction is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

United Rentals

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Rentals are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, United Rentals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hitachi Construction and United Rentals

The main advantage of trading using opposite Hitachi Construction and United Rentals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hitachi Construction 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 Hitachi Construction Machinery 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.