Correlation Between Radcom and McGrath RentCorp

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

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

Diversification Opportunities for Radcom and McGrath RentCorp

0.3

Correlation Coefficient

Radcom  McGrath RentCorp

Weak diversification

The 3 months correlation between Radcom and McGrath is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Radcom and McGrath RentCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McGrath RentCorp and Radcom 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 Radcom are associated (or correlated) with McGrath RentCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McGrath RentCorp has no effect on the direction of Radcom i.e., Radcom and McGrath RentCorp go up and down completely randomly.

Pair Corralation between Radcom and McGrath RentCorp

Given the investment horizon of 90 days Radcom is expected to generate 3.38 times more return on investment than McGrath RentCorp. However, Radcom is 3.38 times more volatile than McGrath RentCorp. It trades about 0.15 of its potential returns per unit of risk. McGrath RentCorp is currently generating about 0.37 per unit of risk. If you would invest  1,204  in Radcom on October 27, 2024 and sell it today you would earn a total of  131.00  from holding Radcom or generate 10.88% return on investment over 90 days.

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

Radcom  vs.  McGrath RentCorp

Radcom

Risk-Adjusted Performance

11 of 100

Good

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

McGrath RentCorp

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in McGrath RentCorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, McGrath RentCorp may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Radcom and McGrath RentCorp

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

The idea behind Radcom and McGrath RentCorp 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.