Correlation Between United Rentals and Chuangs China

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

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

Diversification Opportunities for United Rentals and Chuangs China

0.02

Correlation Coefficient

United Rentals  Chuangs China

Significant diversification

The 3 months correlation between United and Chuangs is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and Chuangs China Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chuangs China Investments 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 Chuangs China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chuangs China Investments has no effect on the direction of United Rentals i.e., United Rentals and Chuangs China go up and down completely randomly.

Pair Corralation between United Rentals and Chuangs China

Assuming the 90 days horizon United Rentals is expected to generate 2.93 times more return on investment than Chuangs China. However, United Rentals is 2.93 times more volatile than Chuangs China Investments. It trades about 0.17 of its potential returns per unit of risk. Chuangs China Investments is currently generating about 0.0 per unit of risk. If you would invest  62,754  in United Rentals on September 4, 2024 and sell it today you would earn a total of  18,886  from holding United Rentals or generate 30.1% return on investment over 90 days.

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

United Rentals  vs.  Chuangs China Investments

United Rentals

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Rentals are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, United Rentals reported solid returns over the last few months and may actually be approaching a breakup point.

Chuangs China Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chuangs China Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Chuangs China is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with United Rentals and Chuangs China

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

The idea behind United Rentals and Chuangs China Investments 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.