Correlation Between United Rentals and ESSA Pharma

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

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

Diversification Opportunities for United Rentals and ESSA Pharma

0.33

Correlation Coefficient

United Rentals  ESSA Pharma

Weak diversification

The 3 months correlation between United and ESSA is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and ESSA Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESSA Pharma 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 ESSA Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESSA Pharma has no effect on the direction of United Rentals i.e., United Rentals and ESSA Pharma go up and down completely randomly.

Pair Corralation between United Rentals and ESSA Pharma

Considering the 90-day investment horizon United Rentals is expected to generate 1.39 times more return on investment than ESSA Pharma. However, United Rentals is 1.39 times more volatile than ESSA Pharma. It trades about -0.07 of its potential returns per unit of risk. ESSA Pharma is currently generating about -0.11 per unit of risk. If you would invest  71,484  in United Rentals on December 27, 2024 and sell it today you would lose (7,324) from holding United Rentals or give up 10.25% of portfolio value over 90 days.

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

United Rentals  vs.  ESSA Pharma

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.

ESSA Pharma

Risk-Adjusted Performance

Very Weak

Over the last 90 days ESSA Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with United Rentals and ESSA Pharma

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

The idea behind United Rentals and ESSA Pharma 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.