Correlation Between HE Equipment and Hertz Global

Can any of the company-specific risk be diversified away by investing in both HE Equipment and Hertz Global 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 HE Equipment and Hertz Global into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HE Equipment Services and Hertz Global Hldgs, you can compare the effects of market volatilities on HE Equipment and Hertz Global 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 HE Equipment with a short position of Hertz Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of HE Equipment and Hertz Global.

Diversification Opportunities for HE Equipment and Hertz Global

0.6

Correlation Coefficient

HE Equipment  Hertz Global

Poor diversification

The 3 months correlation between HEES and Hertz is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding HE Equipment Services and Hertz Global Hldgs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hertz Global Hldgs and HE Equipment 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 HE Equipment Services are associated (or correlated) with Hertz Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hertz Global Hldgs has no effect on the direction of HE Equipment i.e., HE Equipment and Hertz Global go up and down completely randomly.

Pair Corralation between HE Equipment and Hertz Global

Given the investment horizon of 90 days HE Equipment Services is expected to under-perform the Hertz Global. But the stock apears to be less risky and, when comparing its historical volatility, HE Equipment Services is 2.0 times less risky than Hertz Global. The stock trades about -0.56 of its potential returns per unit of risk. The Hertz Global Hldgs is currently generating about -0.23 of returns per unit of risk over similar time horizon. If you would invest  274.00  in Hertz Global Hldgs on October 9, 2024 and sell it today you would lose (48.00) from holding Hertz Global Hldgs or give up 17.52% of portfolio value over 90 days.

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

HE Equipment Services  vs.  Hertz Global Hldgs

HE Equipment Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HE Equipment Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, HE Equipment is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Hertz Global Hldgs

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hertz Global Hldgs are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Hertz Global showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HE Equipment and Hertz Global

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

The idea behind HE Equipment Services and Hertz Global Hldgs 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.