Correlation Between Timken and United Rentals

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

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

Diversification Opportunities for Timken and United Rentals

-0.28

Correlation Coefficient

Timken  United Rentals

Very good diversification

The 3 months correlation between Timken and United is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and United Rentals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Rentals and Timken 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 Timken Company 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 Timken i.e., Timken and United Rentals go up and down completely randomly.

Pair Corralation between Timken and United Rentals

Considering the 90-day investment horizon Timken Company is expected to generate 0.76 times more return on investment than United Rentals. However, Timken Company is 1.32 times less risky than United Rentals. It trades about 0.05 of its potential returns per unit of risk. United Rentals is currently generating about -0.24 per unit of risk. If you would invest  7,462  in Timken Company on September 15, 2024 and sell it today you would earn a total of  88.00  from holding Timken Company or generate 1.18% return on investment over 90 days.

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

Timken Company  vs.  United Rentals

Timken Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Timken Company has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward-looking signals, Timken is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

United Rentals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Rentals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, United Rentals is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Timken and United Rentals

The main advantage of trading using opposite Timken and United Rentals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Timken 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 Timken Company 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.