Correlation Between United Rentals and Shopify

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Can any of the company-specific risk be diversified away by investing in both United Rentals and Shopify 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 Shopify into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Rentals and Shopify, you can compare the effects of market volatilities on United Rentals and Shopify 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 Shopify. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Rentals and Shopify.

Diversification Opportunities for United Rentals and Shopify

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between United and Shopify is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify 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 Shopify. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shopify has no effect on the direction of United Rentals i.e., United Rentals and Shopify go up and down completely randomly.

Pair Corralation between United Rentals and Shopify

Considering the 90-day investment horizon United Rentals is expected to generate 1.45 times less return on investment than Shopify. But when comparing it to its historical volatility, United Rentals is 1.47 times less risky than Shopify. It trades about 0.09 of its potential returns per unit of risk. Shopify is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,306  in Shopify on September 12, 2024 and sell it today you would earn a total of  8,775  from holding Shopify or generate 120.11% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.7%
ValuesDaily Returns

United Rentals  vs.  Shopify

 Performance 
       Timeline  
United Rentals 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in United Rentals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, United Rentals may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Shopify 

Risk-Adjusted Performance

20 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Shopify displayed solid returns over the last few months and may actually be approaching a breakup point.

United Rentals and Shopify Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with United Rentals and Shopify

The main advantage of trading using opposite United Rentals and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Rentals position performs unexpectedly, Shopify 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 Shopify will offset losses from the drop in Shopify's long position.
The idea behind United Rentals and Shopify 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.
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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