Correlation Between United Rentals and SSE PLC

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

Diversification Opportunities for United Rentals and SSE PLC

-0.7
  Correlation Coefficient

Excellent diversification

The 3 months correlation between United and SSE is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and SSE PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSE PLC ADR 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 SSE PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSE PLC ADR has no effect on the direction of United Rentals i.e., United Rentals and SSE PLC go up and down completely randomly.

Pair Corralation between United Rentals and SSE PLC

Considering the 90-day investment horizon United Rentals is expected to generate 1.82 times more return on investment than SSE PLC. However, United Rentals is 1.82 times more volatile than SSE PLC ADR. It trades about -0.04 of its potential returns per unit of risk. SSE PLC ADR is currently generating about -0.28 per unit of risk. If you would invest  83,648  in United Rentals on September 12, 2024 and sell it today you would lose (4,046) from holding United Rentals or give up 4.84% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

United Rentals  vs.  SSE PLC ADR

 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.
SSE PLC ADR 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days SSE PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

United Rentals and SSE PLC Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with United Rentals and SSE PLC

The main advantage of trading using opposite United Rentals and SSE PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Rentals position performs unexpectedly, SSE PLC 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 SSE PLC will offset losses from the drop in SSE PLC's long position.
The idea behind United Rentals and SSE PLC ADR 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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