Correlation Between Ford and United Rentals
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and United Rentals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and United Rentals, you can compare the effects of market volatilities on Ford 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 Ford with a short position of United Rentals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and United Rentals.
Diversification Opportunities for Ford and United Rentals
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and United is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and United Rentals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Rentals and Ford 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 Ford Motor 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 Ford i.e., Ford and United Rentals go up and down completely randomly.
Pair Corralation between Ford and United Rentals
Assuming the 90 days trading horizon Ford is expected to generate 1.19 times less return on investment than United Rentals. But when comparing it to its historical volatility, Ford Motor is 1.59 times less risky than United Rentals. It trades about 0.24 of its potential returns per unit of risk. United Rentals is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 15,356 in United Rentals on September 3, 2024 and sell it today you would earn a total of 3,257 from holding United Rentals or generate 21.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. United Rentals
Performance |
| Timeline |
| Ford Motor |
| United Rentals |
Ford and United Rentals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and United Rentals
The main advantage of trading using opposite Ford and United Rentals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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' long position.| Ford vs. United Rentals | Ford vs. STMicroelectronics NV | Ford vs. Apartment Investment and | Ford vs. Unity Software |
| United Rentals vs. Localiza Rent a | United Rentals vs. Movida Participaes SA | United Rentals vs. Fundo Investimento Imobiliario | United Rentals vs. Fras le SA |
Check out your portfolio center.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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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