Correlation Between United Rentals and BAKER

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

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

Diversification Opportunities for United Rentals and BAKER

0.22

Correlation Coefficient

United Rentals  BAKER

Modest diversification

The 3 months correlation between United and BAKER is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and BAKER HUGHES A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAKER HUGHES A 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 BAKER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAKER HUGHES A has no effect on the direction of United Rentals i.e., United Rentals and BAKER go up and down completely randomly.

Pair Corralation between United Rentals and BAKER

Considering the 90-day investment horizon United Rentals is expected to generate 14.45 times less return on investment than BAKER. But when comparing it to its historical volatility, United Rentals is 21.01 times less risky than BAKER. It trades about 0.06 of its potential returns per unit of risk. BAKER HUGHES A is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  8,383  in BAKER HUGHES A on October 5, 2024 and sell it today you would lose (162.00) from holding BAKER HUGHES A or give up 1.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	85.22%
Values	Daily Returns

United Rentals  vs.  BAKER HUGHES A

United Rentals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Rentals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

BAKER HUGHES A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BAKER HUGHES A has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BAKER is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with United Rentals and BAKER

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

The idea behind United Rentals and BAKER HUGHES A 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.