Correlation Between UNITED RENTALS and Sandfire Resources

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

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

Diversification Opportunities for UNITED RENTALS and Sandfire Resources

0.26

Correlation Coefficient

UNITED RENTALS  Sandfire Resources

Modest diversification

The 3 months correlation between UNITED and Sandfire is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding UNITED RENTALS and Sandfire Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sandfire Resources 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 Sandfire Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sandfire Resources has no effect on the direction of UNITED RENTALS i.e., UNITED RENTALS and Sandfire Resources go up and down completely randomly.

Pair Corralation between UNITED RENTALS and Sandfire Resources

Assuming the 90 days trading horizon UNITED RENTALS is expected to generate 0.92 times more return on investment than Sandfire Resources. However, UNITED RENTALS is 1.09 times less risky than Sandfire Resources. It trades about 0.07 of its potential returns per unit of risk. Sandfire Resources Limited is currently generating about 0.04 per unit of risk. If you would invest  35,025  in UNITED RENTALS on October 4, 2024 and sell it today you would earn a total of  33,055  from holding UNITED RENTALS or generate 94.38% return on investment over 90 days.

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

UNITED RENTALS  vs.  Sandfire Resources Limited

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Sandfire Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sandfire Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with UNITED RENTALS and Sandfire Resources

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

The idea behind UNITED RENTALS and Sandfire Resources Limited 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.