Correlation Between United Rentals and Nordic Aqua

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

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

Diversification Opportunities for United Rentals and Nordic Aqua

-0.8

Correlation Coefficient

United Rentals  Nordic Aqua

Pay attention - limited upside

The 3 months correlation between United and Nordic is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and Nordic Aqua Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordic Aqua Partners 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 Nordic Aqua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordic Aqua Partners has no effect on the direction of United Rentals i.e., United Rentals and Nordic Aqua go up and down completely randomly.

Pair Corralation between United Rentals and Nordic Aqua

Considering the 90-day investment horizon United Rentals is expected to under-perform the Nordic Aqua. In addition to that, United Rentals is 1.03 times more volatile than Nordic Aqua Partners. It trades about -0.07 of its total potential returns per unit of risk. Nordic Aqua Partners is currently generating about 0.11 per unit of volatility. If you would invest  7,400  in Nordic Aqua Partners on December 26, 2024 and sell it today you would earn a total of  1,100  from holding Nordic Aqua Partners or generate 14.86% return on investment over 90 days.

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

United Rentals  vs.  Nordic Aqua Partners

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.

Nordic Aqua Partners

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nordic Aqua Partners are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Nordic Aqua disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Rentals and Nordic Aqua

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

The idea behind United Rentals and Nordic Aqua Partners 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.