Correlation Between United Rentals and First Trust

Can any of the company-specific risk be diversified away by investing in both United Rentals and First 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 First 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 First Trust TCW, you can compare the effects of market volatilities on United Rentals and First 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Rentals and First Trust.

Diversification Opportunities for United Rentals and First Trust

-0.72

Correlation Coefficient

United Rentals  First Trust

Pay attention - limited upside

The 3 months correlation between United and First is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and First Trust TCW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust TCW 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust TCW has no effect on the direction of United Rentals i.e., United Rentals and First Trust go up and down completely randomly.

Pair Corralation between United Rentals and First Trust

Considering the 90-day investment horizon United Rentals is expected to under-perform the First Trust. In addition to that, United Rentals is 6.84 times more volatile than First Trust TCW. It trades about -0.06 of its total potential returns per unit of risk. First Trust TCW is currently generating about 0.11 per unit of volatility. If you would invest  4,253  in First Trust TCW on December 27, 2024 and sell it today you would earn a total of  94.00  from holding First Trust TCW or generate 2.21% return on investment over 90 days.

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

United Rentals  vs.  First Trust TCW

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.

First Trust TCW

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust TCW are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with United Rentals and First Trust

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

The idea behind United Rentals and First Trust TCW 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.