Correlation Between United Rentals and Shift4 Payments

Can any of the company-specific risk be diversified away by investing in both United Rentals and Shift4 Payments 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 Shift4 Payments into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between United Rentals and Shift4 Payments, you can compare the effects of market volatilities on United Rentals and Shift4 Payments 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 Shift4 Payments. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Rentals and Shift4 Payments.

Diversification Opportunities for United Rentals and Shift4 Payments

0.87

Correlation Coefficient

United Rentals  Shift4 Payments

Very poor diversification

The 3 months correlation between United and Shift4 is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and Shift4 Payments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shift4 Payments 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 Shift4 Payments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shift4 Payments has no effect on the direction of United Rentals i.e., United Rentals and Shift4 Payments go up and down completely randomly.

Pair Corralation between United Rentals and Shift4 Payments

Considering the 90-day investment horizon United Rentals is expected to generate 2.47 times less return on investment than Shift4 Payments. But when comparing it to its historical volatility, United Rentals is 1.24 times less risky than Shift4 Payments. It trades about 0.17 of its potential returns per unit of risk. Shift4 Payments is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  9,018  in Shift4 Payments on September 4, 2024 and sell it today you would earn a total of  2,257  from holding Shift4 Payments or generate 25.03% return on investment over 90 days.

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

United Rentals  vs.  Shift4 Payments

United Rentals

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Rentals are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, United Rentals demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Shift4 Payments

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shift4 Payments are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Shift4 Payments reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Rentals and Shift4 Payments

The main advantage of trading using opposite United Rentals and Shift4 Payments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Rentals position performs unexpectedly, Shift4 Payments 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 Shift4 Payments will offset losses from the drop in Shift4 Payments' long position.

The idea behind United Rentals and Shift4 Payments 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.