Correlation Between United Rentals and Melcor Developments

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

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

Diversification Opportunities for United Rentals and Melcor Developments

0.59

Correlation Coefficient

United Rentals  Melcor Developments

Very weak diversification

The 3 months correlation between United and Melcor is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and Melcor Developments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melcor Developments 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 Melcor Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melcor Developments has no effect on the direction of United Rentals i.e., United Rentals and Melcor Developments go up and down completely randomly.

Pair Corralation between United Rentals and Melcor Developments

Considering the 90-day investment horizon United Rentals is expected to under-perform the Melcor Developments. In addition to that, United Rentals is 1.76 times more volatile than Melcor Developments. It trades about -0.05 of its total potential returns per unit of risk. Melcor Developments is currently generating about -0.01 per unit of volatility. If you would invest  1,268  in Melcor Developments on December 29, 2024 and sell it today you would lose (22.00) from holding Melcor Developments or give up 1.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

United Rentals  vs.  Melcor Developments

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.

Melcor Developments

Risk-Adjusted Performance

Very Weak

Over the last 90 days Melcor Developments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Melcor Developments is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with United Rentals and Melcor Developments

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

The idea behind United Rentals and Melcor Developments 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.