Correlation Between United Rentals and Methode Electronics

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

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

Diversification Opportunities for United Rentals and Methode Electronics

-0.18

Correlation Coefficient

United Rentals  Methode Electronics

Good diversification

The 3 months correlation between United and Methode is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics 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 Methode Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Methode Electronics has no effect on the direction of United Rentals i.e., United Rentals and Methode Electronics go up and down completely randomly.

Pair Corralation between United Rentals and Methode Electronics

Assuming the 90 days horizon United Rentals is expected to generate 0.63 times more return on investment than Methode Electronics. However, United Rentals is 1.6 times less risky than Methode Electronics. It trades about 0.07 of its potential returns per unit of risk. Methode Electronics is currently generating about -0.04 per unit of risk. If you would invest  34,504  in United Rentals on October 3, 2024 and sell it today you would earn a total of  33,556  from holding United Rentals or generate 97.25% 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.  Methode Electronics

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. Despite nearly stable basic indicators, United Rentals is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Methode Electronics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Methode Electronics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Methode Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Rentals and Methode Electronics

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

The idea behind United Rentals and Methode Electronics 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.