Correlation Between United Rentals and Wyndham Hotels

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

By analyzing existing cross correlation between United Rentals and Wyndham Hotels Resorts, you can compare the effects of market volatilities on United Rentals and Wyndham Hotels 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 Wyndham Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Rentals and Wyndham Hotels.

Diversification Opportunities for United Rentals and Wyndham Hotels

-0.29

Correlation Coefficient

United Rentals  Wyndham Hotels

Very good diversification

The 3 months correlation between United and Wyndham is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and Wyndham Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wyndham Hotels Resorts 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 Wyndham Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wyndham Hotels Resorts has no effect on the direction of United Rentals i.e., United Rentals and Wyndham Hotels go up and down completely randomly.

Pair Corralation between United Rentals and Wyndham Hotels

Assuming the 90 days horizon United Rentals is expected to generate 9.6 times less return on investment than Wyndham Hotels. In addition to that, United Rentals is 1.73 times more volatile than Wyndham Hotels Resorts. It trades about 0.01 of its total potential returns per unit of risk. Wyndham Hotels Resorts is currently generating about 0.21 per unit of volatility. If you would invest  8,268  in Wyndham Hotels Resorts on October 25, 2024 and sell it today you would earn a total of  1,682  from holding Wyndham Hotels Resorts or generate 20.34% return on investment over 90 days.

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

United Rentals  vs.  Wyndham Hotels Resorts

United Rentals

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days United Rentals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, United Rentals is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Wyndham Hotels Resorts

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wyndham Hotels Resorts are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Wyndham Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Rentals and Wyndham Hotels

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

The idea behind United Rentals and Wyndham Hotels Resorts 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.