Correlation Between Microsoft and UNITED RENTALS

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

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

Diversification Opportunities for Microsoft and UNITED RENTALS

0.2

Correlation Coefficient

Microsoft  UNITED RENTALS

Modest diversification

The 3 months correlation between Microsoft and UNITED is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and UNITED RENTALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITED RENTALS and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and UNITED RENTALS go up and down completely randomly.

Pair Corralation between Microsoft and UNITED RENTALS

Assuming the 90 days trading horizon Microsoft is expected to under-perform the UNITED RENTALS. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.66 times less risky than UNITED RENTALS. The stock trades about -0.01 of its potential returns per unit of risk. The UNITED RENTALS is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  59,545  in UNITED RENTALS on September 29, 2024 and sell it today you would earn a total of  9,715  from holding UNITED RENTALS or generate 16.32% return on investment over 90 days.

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

Microsoft  vs.  UNITED RENTALS

Microsoft

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Microsoft 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

Very 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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Microsoft and UNITED RENTALS

The main advantage of trading using opposite Microsoft and UNITED RENTALS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.