Correlation Between United Rentals and Digi International

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

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

Diversification Opportunities for United Rentals and Digi International

0.64

Correlation Coefficient

United Rentals  Digi International

Poor diversification

The 3 months correlation between United and Digi is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and Digi International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digi International 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 Digi International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digi International has no effect on the direction of United Rentals i.e., United Rentals and Digi International go up and down completely randomly.

Pair Corralation between United Rentals and Digi International

Considering the 90-day investment horizon United Rentals is expected to under-perform the Digi International. In addition to that, United Rentals is 1.01 times more volatile than Digi International. It trades about -0.26 of its total potential returns per unit of risk. Digi International is currently generating about 0.21 per unit of volatility. If you would invest  3,100  in Digi International on September 18, 2024 and sell it today you would earn a total of  221.00  from holding Digi International or generate 7.13% return on investment over 90 days.

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

United Rentals  vs.  Digi International

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 fairly strong basic indicators, United Rentals is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Digi International

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Digi International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Rentals and Digi International

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

The idea behind United Rentals and Digi International 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.