Correlation Between Hertz Global and HE Equipment

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

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

Diversification Opportunities for Hertz Global and HE Equipment

0.23

Correlation Coefficient

Hertz Global  HE Equipment

Modest diversification

The 3 months correlation between Hertz and HEES is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Hertz Global Hldgs and HE Equipment Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HE Equipment Services 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 Hldgs are associated (or correlated) with HE Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HE Equipment Services has no effect on the direction of Hertz Global i.e., Hertz Global and HE Equipment go up and down completely randomly.

Pair Corralation between Hertz Global and HE Equipment

Assuming the 90 days horizon Hertz Global is expected to generate 3.58 times less return on investment than HE Equipment. But when comparing it to its historical volatility, Hertz Global Hldgs is 3.1 times less risky than HE Equipment. It trades about 0.09 of its potential returns per unit of risk. HE Equipment Services is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5,587  in HE Equipment Services on October 24, 2024 and sell it today you would earn a total of  3,359  from holding HE Equipment Services or generate 60.12% return on investment over 90 days.

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

Hertz Global Hldgs  vs.  HE Equipment Services

Hertz Global Hldgs

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hertz Global Hldgs are ranked lower than 6 (%) 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.

HE Equipment Services

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HE Equipment Services are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, HE Equipment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hertz Global and HE Equipment

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

The idea behind Hertz Global Hldgs and HE Equipment Services 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.