Correlation Between United Rentals and China Railway

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

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

Diversification Opportunities for United Rentals and China Railway

-0.23

Correlation Coefficient

United Rentals  China Railway

Very good diversification

The 3 months correlation between United and China is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and China Railway Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Materials 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 China Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Materials has no effect on the direction of United Rentals i.e., United Rentals and China Railway go up and down completely randomly.

Pair Corralation between United Rentals and China Railway

Considering the 90-day investment horizon United Rentals is expected to under-perform the China Railway. In addition to that, United Rentals is 1.75 times more volatile than China Railway Materials. It trades about -0.05 of its total potential returns per unit of risk. China Railway Materials is currently generating about -0.05 per unit of volatility. If you would invest  270.00  in China Railway Materials on December 29, 2024 and sell it today you would lose (11.00) from holding China Railway Materials or give up 4.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

United Rentals  vs.  China Railway Materials

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. Despite latest uncertain performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

China Railway Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Railway Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Railway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with United Rentals and China Railway

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

The idea behind United Rentals and China Railway Materials 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.