Correlation Between Telia Company and United Rentals

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

By analyzing existing cross correlation between Telia Company AB and United Rentals, you can compare the effects of market volatilities on Telia Company 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 Telia Company with a short position of United Rentals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telia Company and United Rentals.

Diversification Opportunities for Telia Company and United Rentals

-0.6

Correlation Coefficient

Telia Company  United Rentals

Excellent diversification

The 3 months correlation between Telia and United is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Telia Company AB and United Rentals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Rentals and Telia Company 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 Telia Company AB 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 Telia Company i.e., Telia Company and United Rentals go up and down completely randomly.

Pair Corralation between Telia Company and United Rentals

Assuming the 90 days horizon Telia Company AB is expected to under-perform the United Rentals. But the pink sheet apears to be less risky and, when comparing its historical volatility, Telia Company AB is 1.52 times less risky than United Rentals. The pink sheet trades about -0.01 of its potential returns per unit of risk. The United Rentals is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  34,725  in United Rentals on January 24, 2024 and sell it today you would earn a total of  28,205  from holding United Rentals or generate 81.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Telia Company AB  vs.  United Rentals

Telia Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telia Company AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

United Rentals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United Rentals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, United Rentals may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Telia Company and United Rentals

The main advantage of trading using opposite Telia Company and United Rentals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telia Company 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.

The idea behind Telia Company AB and United Rentals 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..