Correlation Between United Rentals and SUMITOMO

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

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

Diversification Opportunities for United Rentals and SUMITOMO

-0.44

Correlation Coefficient

United Rentals  SUMITOMO

Very good diversification

The 3 months correlation between United and SUMITOMO is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and SUMITOMO MITSUI FINANCIAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SUMITOMO MITSUI 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 SUMITOMO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SUMITOMO MITSUI FINANCIAL has no effect on the direction of United Rentals i.e., United Rentals and SUMITOMO go up and down completely randomly.

Pair Corralation between United Rentals and SUMITOMO

Considering the 90-day investment horizon United Rentals is expected to generate 1.85 times more return on investment than SUMITOMO. However, United Rentals is 1.85 times more volatile than SUMITOMO MITSUI FINANCIAL. It trades about 0.18 of its potential returns per unit of risk. SUMITOMO MITSUI FINANCIAL is currently generating about -0.14 per unit of risk. If you would invest  70,053  in United Rentals on September 3, 2024 and sell it today you would earn a total of  16,547  from holding United Rentals or generate 23.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	81.25%
Values	Daily Returns

United Rentals  vs.  SUMITOMO MITSUI FINANCIAL

United Rentals

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Rentals are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, United Rentals demonstrated solid returns over the last few months and may actually be approaching a breakup point.

SUMITOMO MITSUI FINANCIAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SUMITOMO MITSUI FINANCIAL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for SUMITOMO MITSUI FINANCIAL investors.

Pair Trading with United Rentals and SUMITOMO

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

The idea behind United Rentals and SUMITOMO MITSUI 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.