Correlation Between United Rentals and Malacca Straits

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

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

Diversification Opportunities for United Rentals and Malacca Straits

-0.58

Correlation Coefficient

United Rentals  Malacca Straits

Excellent diversification

The 3 months correlation between United and Malacca is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and Malacca Straits Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Malacca Straits Acqu 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 Malacca Straits. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Malacca Straits Acqu has no effect on the direction of United Rentals i.e., United Rentals and Malacca Straits go up and down completely randomly.

Pair Corralation between United Rentals and Malacca Straits

Considering the 90-day investment horizon United Rentals is expected to generate 16.42 times less return on investment than Malacca Straits. But when comparing it to its historical volatility, United Rentals is 19.91 times less risky than Malacca Straits. It trades about 0.08 of its potential returns per unit of risk. Malacca Straits Acquisition is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Malacca Straits Acquisition on September 7, 2024 and sell it today you would lose (5.86) from holding Malacca Straits Acquisition or give up 97.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	14.68%
Values	Daily Returns

United Rentals  vs.  Malacca Straits Acquisition

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 uncertain basic indicators, United Rentals demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Malacca Straits Acqu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Malacca Straits Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Malacca Straits is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with United Rentals and Malacca Straits

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

The idea behind United Rentals and Malacca Straits Acquisition 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.