Correlation Between KENNAMETAL INC and UNITED RENTALS

Can any of the company-specific risk be diversified away by investing in both KENNAMETAL INC 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 KENNAMETAL INC and UNITED RENTALS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KENNAMETAL INC and UNITED RENTALS, you can compare the effects of market volatilities on KENNAMETAL INC 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 KENNAMETAL INC with a short position of UNITED RENTALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of KENNAMETAL INC and UNITED RENTALS.

Diversification Opportunities for KENNAMETAL INC and UNITED RENTALS

0.83

Correlation Coefficient

KENNAMETAL INC  UNITED RENTALS

Very poor diversification

The 3 months correlation between KENNAMETAL and UNITED is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding KENNAMETAL INC and UNITED RENTALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITED RENTALS and KENNAMETAL INC 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 KENNAMETAL INC 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 KENNAMETAL INC i.e., KENNAMETAL INC and UNITED RENTALS go up and down completely randomly.

Pair Corralation between KENNAMETAL INC and UNITED RENTALS

Assuming the 90 days trading horizon KENNAMETAL INC is expected to generate 1.38 times more return on investment than UNITED RENTALS. However, KENNAMETAL INC is 1.38 times more volatile than UNITED RENTALS. It trades about 0.05 of its potential returns per unit of risk. UNITED RENTALS is currently generating about 0.01 per unit of risk. If you would invest  2,283  in KENNAMETAL INC on September 21, 2024 and sell it today you would earn a total of  157.00  from holding KENNAMETAL INC or generate 6.88% return on investment over 90 days.

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

KENNAMETAL INC  vs.  UNITED RENTALS

KENNAMETAL INC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KENNAMETAL INC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, KENNAMETAL INC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

UNITED RENTALS

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with KENNAMETAL INC and UNITED RENTALS

The main advantage of trading using opposite KENNAMETAL INC and UNITED RENTALS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KENNAMETAL INC 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's long position.

The idea behind KENNAMETAL INC 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.