Correlation Between United Rentals and Norsk Hydro
Can any of the company-specific risk be diversified away by investing in both United Rentals and Norsk Hydro 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 Norsk Hydro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Rentals and Norsk Hydro ASA, you can compare the effects of market volatilities on United Rentals and Norsk Hydro 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 Norsk Hydro. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Rentals and Norsk Hydro.
Diversification Opportunities for United Rentals and Norsk Hydro
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between United and Norsk is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and Norsk Hydro ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norsk Hydro ASA 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 Norsk Hydro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norsk Hydro ASA has no effect on the direction of United Rentals i.e., United Rentals and Norsk Hydro go up and down completely randomly.
Pair Corralation between United Rentals and Norsk Hydro
Assuming the 90 days horizon United Rentals is expected to generate 1.07 times more return on investment than Norsk Hydro. However, United Rentals is 1.07 times more volatile than Norsk Hydro ASA. It trades about 0.14 of its potential returns per unit of risk. Norsk Hydro ASA is currently generating about 0.06 per unit of risk. If you would invest 74,092 in United Rentals on August 31, 2024 and sell it today you would earn a total of 7,808 from holding United Rentals or generate 10.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Rentals vs. Norsk Hydro ASA
Performance |
| Timeline |
| United Rentals |
| Norsk Hydro ASA |
United Rentals and Norsk Hydro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Rentals and Norsk Hydro
The main advantage of trading using opposite United Rentals and Norsk Hydro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Rentals position performs unexpectedly, Norsk Hydro 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 Norsk Hydro will offset losses from the drop in Norsk Hydro's long position.| United Rentals vs. FUYO GENERAL LEASE | United Rentals vs. Sumitomo Chemical | United Rentals vs. TIANDE CHEMICAL | United Rentals vs. Sanyo Chemical Industries |
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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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