Correlation Between Hertz Global and McGrath RentCorp

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

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

Diversification Opportunities for Hertz Global and McGrath RentCorp

0.65

Correlation Coefficient

Hertz Global  McGrath RentCorp

Poor diversification

The 3 months correlation between Hertz and McGrath is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Hertz Global Holdings and McGrath RentCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McGrath RentCorp and Hertz Global 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 Hertz Global Holdings are associated (or correlated) with McGrath RentCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McGrath RentCorp has no effect on the direction of Hertz Global i.e., Hertz Global and McGrath RentCorp go up and down completely randomly.

Pair Corralation between Hertz Global and McGrath RentCorp

Considering the 90-day investment horizon Hertz Global Holdings is expected to under-perform the McGrath RentCorp. In addition to that, Hertz Global is 2.87 times more volatile than McGrath RentCorp. It trades about -0.06 of its total potential returns per unit of risk. McGrath RentCorp is currently generating about 0.04 per unit of volatility. If you would invest  9,852  in McGrath RentCorp on December 5, 2024 and sell it today you would earn a total of  2,114  from holding McGrath RentCorp or generate 21.46% return on investment over 90 days.

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

Hertz Global Holdings  vs.  McGrath RentCorp

Hertz Global Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hertz Global Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Hertz Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

McGrath RentCorp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Hertz Global and McGrath RentCorp

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

The idea behind Hertz Global Holdings and McGrath RentCorp 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.