Correlation Between McGrath RentCorp and DriveItAway

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

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

Diversification Opportunities for McGrath RentCorp and DriveItAway

-0.78

Correlation Coefficient

McGrath RentCorp  DriveItAway

Pay attention - limited upside

The 3 months correlation between McGrath and DriveItAway is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding McGrath RentCorp and DriveItAway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DriveItAway and McGrath RentCorp 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 McGrath RentCorp are associated (or correlated) with DriveItAway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DriveItAway has no effect on the direction of McGrath RentCorp i.e., McGrath RentCorp and DriveItAway go up and down completely randomly.

Pair Corralation between McGrath RentCorp and DriveItAway

Given the investment horizon of 90 days McGrath RentCorp is expected to generate 0.13 times more return on investment than DriveItAway. However, McGrath RentCorp is 7.89 times less risky than DriveItAway. It trades about 0.14 of its potential returns per unit of risk. DriveItAway is currently generating about -0.05 per unit of risk. If you would invest  10,175  in McGrath RentCorp on September 17, 2024 and sell it today you would earn a total of  1,759  from holding McGrath RentCorp or generate 17.29% return on investment over 90 days.

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

McGrath RentCorp  vs.  DriveItAway

McGrath RentCorp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in McGrath RentCorp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, McGrath RentCorp exhibited solid returns over the last few months and may actually be approaching a breakup point.

DriveItAway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DriveItAway has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with McGrath RentCorp and DriveItAway

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

The idea behind McGrath RentCorp and DriveItAway 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.