Correlation Between United Rentals and LightPath Technologies

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

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

Diversification Opportunities for United Rentals and LightPath Technologies

0.78

Correlation Coefficient

United Rentals  LightPath Technologies

Poor diversification

The 3 months correlation between United and LightPath is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and LightPath Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LightPath Technologies 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 LightPath Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LightPath Technologies has no effect on the direction of United Rentals i.e., United Rentals and LightPath Technologies go up and down completely randomly.

Pair Corralation between United Rentals and LightPath Technologies

Considering the 90-day investment horizon United Rentals is expected to generate 4.02 times less return on investment than LightPath Technologies. But when comparing it to its historical volatility, United Rentals is 1.82 times less risky than LightPath Technologies. It trades about 0.1 of its potential returns per unit of risk. LightPath Technologies is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  120.00  in LightPath Technologies on September 12, 2024 and sell it today you would earn a total of  70.00  from holding LightPath Technologies or generate 58.33% 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.  LightPath Technologies

United Rentals

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Rentals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, United Rentals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

LightPath Technologies

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LightPath Technologies are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, LightPath Technologies demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Rentals and LightPath Technologies

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

The idea behind United Rentals and LightPath Technologies 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.