Correlation Between United Rentals and Northern Trust

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

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

Diversification Opportunities for United Rentals and Northern Trust

0.52

Correlation Coefficient

United Rentals  Northern Trust

Very weak diversification

The 3 months correlation between United and Northern is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and Northern Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Trust 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 Northern Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Trust has no effect on the direction of United Rentals i.e., United Rentals and Northern Trust go up and down completely randomly.

Pair Corralation between United Rentals and Northern Trust

Assuming the 90 days horizon United Rentals is expected to under-perform the Northern Trust. But the stock apears to be less risky and, when comparing its historical volatility, United Rentals is 1.13 times less risky than Northern Trust. The stock trades about -0.79 of its potential returns per unit of risk. The Northern Trust is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  10,225  in Northern Trust on October 6, 2024 and sell it today you would lose (275.00) from holding Northern Trust or give up 2.69% of portfolio value over 90 days.

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

United Rentals  vs.  Northern Trust

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Northern Trust

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Trust are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Northern Trust reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Rentals and Northern Trust

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

The idea behind United Rentals and Northern Trust 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .