Correlation Between United Rentals and South Plains

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

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

Diversification Opportunities for United Rentals and South Plains

0.79

Correlation Coefficient

United Rentals  South Plains

Poor diversification

The 3 months correlation between United and South is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and South Plains Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Plains Financial 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 South Plains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Plains Financial has no effect on the direction of United Rentals i.e., United Rentals and South Plains go up and down completely randomly.

Pair Corralation between United Rentals and South Plains

Considering the 90-day investment horizon United Rentals is expected to under-perform the South Plains. In addition to that, United Rentals is 1.44 times more volatile than South Plains Financial. It trades about -0.06 of its total potential returns per unit of risk. South Plains Financial is currently generating about -0.02 per unit of volatility. If you would invest  3,487  in South Plains Financial on December 27, 2024 and sell it today you would lose (106.00) from holding South Plains Financial or give up 3.04% of portfolio value over 90 days.

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

United Rentals  vs.  South Plains Financial

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.

South Plains Financial

Risk-Adjusted Performance

Very Weak

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

Pair Trading with United Rentals and South Plains

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

The idea behind United Rentals and South Plains Financial 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.