Correlation Between TRACTOR SUPPLY and United Rentals

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

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

Diversification Opportunities for TRACTOR SUPPLY and United Rentals

0.37

Correlation Coefficient

TRACTOR SUPPLY  United Rentals

Weak diversification

The 3 months correlation between TRACTOR and United is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding TRACTOR SUPPLY and United Rentals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Rentals and TRACTOR SUPPLY 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 TRACTOR SUPPLY 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 TRACTOR SUPPLY i.e., TRACTOR SUPPLY and United Rentals go up and down completely randomly.

Pair Corralation between TRACTOR SUPPLY and United Rentals

Assuming the 90 days trading horizon TRACTOR SUPPLY is expected to generate 1.77 times less return on investment than United Rentals. But when comparing it to its historical volatility, TRACTOR SUPPLY is 1.49 times less risky than United Rentals. It trades about 0.06 of its potential returns per unit of risk. United Rentals is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  35,020  in United Rentals on October 4, 2024 and sell it today you would earn a total of  33,040  from holding United Rentals or generate 94.35% return on investment over 90 days.

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

TRACTOR SUPPLY  vs.  United Rentals

TRACTOR SUPPLY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TRACTOR SUPPLY has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, TRACTOR SUPPLY is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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. Despite nearly stable basic indicators, United Rentals is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with TRACTOR SUPPLY and United Rentals

The main advantage of trading using opposite TRACTOR SUPPLY and United Rentals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRACTOR SUPPLY 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 TRACTOR SUPPLY 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.