Correlation Between United Rentals and Houston Natural

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

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

Diversification Opportunities for United Rentals and Houston Natural

-0.72

Correlation Coefficient

United Rentals  Houston Natural

Pay attention - limited upside

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

Pair Corralation between United Rentals and Houston Natural

Considering the 90-day investment horizon United Rentals is expected to under-perform the Houston Natural. But the stock apears to be less risky and, when comparing its historical volatility, United Rentals is 3.83 times less risky than Houston Natural. The stock trades about -0.06 of its potential returns per unit of risk. The Houston Natural Resources is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1.65  in Houston Natural Resources on December 25, 2024 and sell it today you would lose (0.07) from holding Houston Natural Resources or give up 4.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	36.67%
Values	Daily Returns

United Rentals  vs.  Houston Natural Resources

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.

Houston Natural Resources

Risk-Adjusted Performance

Weak

Over the last 90 days Houston Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather weak basic indicators, Houston Natural may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with United Rentals and Houston Natural

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

The idea behind United Rentals and Houston Natural Resources 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 Commodity Directory module to find actively traded commodities issued by global exchanges.