Correlation Between Bank of America and UNITED RENTALS

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

By analyzing existing cross correlation between Verizon Communications and UNITED RENTALS, you can compare the effects of market volatilities on Bank of America and UNITED RENTALS 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 Bank of America with a short position of UNITED RENTALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and UNITED RENTALS.

Diversification Opportunities for Bank of America and UNITED RENTALS

0.47

Correlation Coefficient

Bank of America  UNITED RENTALS

Very weak diversification

The 3 months correlation between Bank and UNITED is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and UNITED RENTALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITED RENTALS and Bank of America 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 Verizon Communications are associated (or correlated) with UNITED RENTALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNITED RENTALS has no effect on the direction of Bank of America i.e., Bank of America and UNITED RENTALS go up and down completely randomly.

Pair Corralation between Bank of America and UNITED RENTALS

Assuming the 90 days trading horizon Bank of America is expected to generate 4.87 times less return on investment than UNITED RENTALS. But when comparing it to its historical volatility, Verizon Communications is 1.64 times less risky than UNITED RENTALS. It trades about 0.02 of its potential returns per unit of risk. UNITED RENTALS is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  34,240  in UNITED RENTALS on September 29, 2024 and sell it today you would earn a total of  35,020  from holding UNITED RENTALS or generate 102.28% return on investment over 90 days.

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

Verizon Communications  vs.  UNITED RENTALS

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Bank of America is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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. In spite of rather sound basic indicators, UNITED RENTALS is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Bank of America and UNITED RENTALS

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

The idea behind Verizon Communications and UNITED RENTALS 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 CEOs Directory module to screen CEOs from public companies around the world.