Correlation Between UNITED RENTALS and Carsales

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

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

Diversification Opportunities for UNITED RENTALS and Carsales

0.87

Correlation Coefficient

UNITED RENTALS  Carsales

Very poor diversification

The 3 months correlation between UNITED and Carsales is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding UNITED RENTALS and CarsalesCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom 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 Carsales. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarsalesCom has no effect on the direction of UNITED RENTALS i.e., UNITED RENTALS and Carsales go up and down completely randomly.

Pair Corralation between UNITED RENTALS and Carsales

Assuming the 90 days trading horizon UNITED RENTALS is expected to generate 1.18 times more return on investment than Carsales. However, UNITED RENTALS is 1.18 times more volatile than CarsalesCom. It trades about -0.08 of its potential returns per unit of risk. CarsalesCom is currently generating about -0.12 per unit of risk. If you would invest  67,918  in UNITED RENTALS on December 30, 2024 and sell it today you would lose (8,218) from holding UNITED RENTALS or give up 12.1% of portfolio value over 90 days.

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

UNITED RENTALS  vs.  CarsalesCom

UNITED RENTALS

Risk-Adjusted Performance

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 fragile 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.

CarsalesCom

Risk-Adjusted Performance

Very Weak

Over the last 90 days CarsalesCom 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 April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with UNITED RENTALS and Carsales

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

The idea behind UNITED RENTALS and CarsalesCom 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.