Correlation Between United Rentals and McGrath RentCorp

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

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

Diversification Opportunities for United Rentals and McGrath RentCorp

0.66

Correlation Coefficient

United Rentals  McGrath RentCorp

Poor diversification

The 3 months correlation between United and McGrath is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and McGrath RentCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McGrath RentCorp 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 McGrath RentCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McGrath RentCorp has no effect on the direction of United Rentals i.e., United Rentals and McGrath RentCorp go up and down completely randomly.

Pair Corralation between United Rentals and McGrath RentCorp

Considering the 90-day investment horizon United Rentals is expected to generate 16.06 times less return on investment than McGrath RentCorp. In addition to that, United Rentals is 1.03 times more volatile than McGrath RentCorp. It trades about 0.01 of its total potential returns per unit of risk. McGrath RentCorp is currently generating about 0.13 per unit of volatility. If you would invest  10,175  in McGrath RentCorp on September 17, 2024 and sell it today you would earn a total of  1,629  from holding McGrath RentCorp or generate 16.01% 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.  McGrath RentCorp

United Rentals

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days United Rentals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, United Rentals is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

McGrath RentCorp

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in McGrath RentCorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, McGrath RentCorp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Rentals and McGrath RentCorp

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

The idea behind United Rentals and McGrath RentCorp 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.