Correlation Between UNITED RENTALS and Federal Signal

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

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

Diversification Opportunities for UNITED RENTALS and Federal Signal

0.66

Correlation Coefficient

UNITED RENTALS  Federal Signal

Poor diversification

The 3 months correlation between UNITED and Federal is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding UNITED RENTALS and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal 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 Federal Signal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Signal has no effect on the direction of UNITED RENTALS i.e., UNITED RENTALS and Federal Signal go up and down completely randomly.

Pair Corralation between UNITED RENTALS and Federal Signal

Assuming the 90 days trading horizon UNITED RENTALS is expected to under-perform the Federal Signal. In addition to that, UNITED RENTALS is 1.29 times more volatile than Federal Signal. It trades about -0.14 of its total potential returns per unit of risk. Federal Signal is currently generating about 0.31 per unit of volatility. If you would invest  8,300  in Federal Signal on September 17, 2024 and sell it today you would earn a total of  750.00  from holding Federal Signal or generate 9.04% return on investment over 90 days.

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

UNITED RENTALS  vs.  Federal Signal

UNITED RENTALS

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in UNITED RENTALS are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, UNITED RENTALS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Federal Signal

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Signal are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Federal Signal reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UNITED RENTALS and Federal Signal

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

The idea behind UNITED RENTALS and Federal Signal 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.