Correlation Between McGrath RentCorp and Radcom

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

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

Diversification Opportunities for McGrath RentCorp and Radcom

0.38

Correlation Coefficient

McGrath RentCorp  Radcom

Weak diversification

The 3 months correlation between McGrath and Radcom is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding McGrath RentCorp and Radcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Radcom 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 Radcom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Radcom has no effect on the direction of McGrath RentCorp i.e., McGrath RentCorp and Radcom go up and down completely randomly.

Pair Corralation between McGrath RentCorp and Radcom

Given the investment horizon of 90 days McGrath RentCorp is expected to under-perform the Radcom. But the stock apears to be less risky and, when comparing its historical volatility, McGrath RentCorp is 2.05 times less risky than Radcom. The stock trades about -0.3 of its potential returns per unit of risk. The Radcom is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,200  in Radcom on October 12, 2024 and sell it today you would earn a total of  11.00  from holding Radcom or generate 0.92% return on investment over 90 days.

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

McGrath RentCorp  vs.  Radcom

McGrath RentCorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in McGrath RentCorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Radcom

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Radcom are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Radcom displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McGrath RentCorp and Radcom

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

The idea behind McGrath RentCorp and Radcom 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.