Correlation Between UNITED RENTALS and Abbott Laboratories

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

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

Diversification Opportunities for UNITED RENTALS and Abbott Laboratories

0.11

Correlation Coefficient

UNITED RENTALS  Abbott Laboratories

Average diversification

The 3 months correlation between UNITED and Abbott is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding UNITED RENTALS and Abbott Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott Laboratories 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 Abbott Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abbott Laboratories has no effect on the direction of UNITED RENTALS i.e., UNITED RENTALS and Abbott Laboratories go up and down completely randomly.

Pair Corralation between UNITED RENTALS and Abbott Laboratories

Assuming the 90 days trading horizon UNITED RENTALS is expected to under-perform the Abbott Laboratories. In addition to that, UNITED RENTALS is 1.77 times more volatile than Abbott Laboratories. It trades about -0.01 of its total potential returns per unit of risk. Abbott Laboratories is currently generating about 0.08 per unit of volatility. If you would invest  10,734  in Abbott Laboratories on October 24, 2024 and sell it today you would earn a total of  598.00  from holding Abbott Laboratories or generate 5.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

UNITED RENTALS  vs.  Abbott Laboratories

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 rather sound basic indicators, UNITED RENTALS is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Abbott Laboratories

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Abbott Laboratories are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Abbott Laboratories is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with UNITED RENTALS and Abbott Laboratories

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

The idea behind UNITED RENTALS and Abbott Laboratories 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.

Check out your portfolio center.

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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.