Correlation Between Lifeway Foods and United Rentals

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

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

Diversification Opportunities for Lifeway Foods and United Rentals

0.05

Correlation Coefficient

Lifeway Foods  United Rentals

Significant diversification

The 3 months correlation between Lifeway and United is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Lifeway Foods and United Rentals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Rentals and Lifeway Foods 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 Lifeway Foods 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 Lifeway Foods i.e., Lifeway Foods and United Rentals go up and down completely randomly.

Pair Corralation between Lifeway Foods and United Rentals

Assuming the 90 days horizon Lifeway Foods is expected to generate 1.68 times more return on investment than United Rentals. However, Lifeway Foods is 1.68 times more volatile than United Rentals. It trades about -0.08 of its potential returns per unit of risk. United Rentals is currently generating about -0.66 per unit of risk. If you would invest  2,300  in Lifeway Foods on October 13, 2024 and sell it today you would lose (80.00) from holding Lifeway Foods or give up 3.48% of portfolio value over 90 days.

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

Lifeway Foods  vs.  United Rentals

Lifeway Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lifeway Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Lifeway Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

United Rentals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Rentals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Lifeway Foods and United Rentals

The main advantage of trading using opposite Lifeway Foods and United Rentals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lifeway Foods 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 Lifeway Foods 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.