Correlation Between STMicroelectronics and United Rentals

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

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

Diversification Opportunities for STMicroelectronics and United Rentals

-0.21

Correlation Coefficient

STMicroelectronics  United Rentals

Very good diversification

The 3 months correlation between STMicroelectronics and United is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and United Rentals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Rentals and STMicroelectronics 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 STMicroelectronics NV 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 STMicroelectronics i.e., STMicroelectronics and United Rentals go up and down completely randomly.

Pair Corralation between STMicroelectronics and United Rentals

Assuming the 90 days trading horizon STMicroelectronics NV is expected to generate 1.16 times more return on investment than United Rentals. However, STMicroelectronics is 1.16 times more volatile than United Rentals. It trades about 0.01 of its potential returns per unit of risk. United Rentals is currently generating about -0.13 per unit of risk. If you would invest  15,150  in STMicroelectronics NV on December 30, 2024 and sell it today you would lose (105.00) from holding STMicroelectronics NV or give up 0.69% of portfolio value over 90 days.

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

STMicroelectronics NV  vs.  United Rentals

STMicroelectronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

United Rentals

Risk-Adjusted Performance

Very Weak

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

Pair Trading with STMicroelectronics and United Rentals

The main advantage of trading using opposite STMicroelectronics and United Rentals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics 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 STMicroelectronics NV 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.