Correlation Between UNITED RENTALS and Aqua America

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

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

Diversification Opportunities for UNITED RENTALS and Aqua America

0.76

Correlation Coefficient

UNITED RENTALS  Aqua America

Poor diversification

The 3 months correlation between UNITED and Aqua is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding UNITED RENTALS and Aqua America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqua America and UNITED RENTALS 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 UNITED RENTALS are associated (or correlated) with Aqua America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqua America has no effect on the direction of UNITED RENTALS i.e., UNITED RENTALS and Aqua America go up and down completely randomly.

Pair Corralation between UNITED RENTALS and Aqua America

Assuming the 90 days trading horizon UNITED RENTALS is expected to generate 1.6 times more return on investment than Aqua America. However, UNITED RENTALS is 1.6 times more volatile than Aqua America. It trades about 0.06 of its potential returns per unit of risk. Aqua America is currently generating about 0.02 per unit of risk. If you would invest  49,623  in UNITED RENTALS on October 10, 2024 and sell it today you would earn a total of  16,317  from holding UNITED RENTALS or generate 32.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

UNITED RENTALS  vs.  Aqua America

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 latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Aqua America

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aqua America are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Aqua America is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with UNITED RENTALS and Aqua America

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

The idea behind UNITED RENTALS and Aqua America 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.