Correlation Between UNITED RENTALS and Gamma Communications

Can any of the company-specific risk be diversified away by investing in both UNITED RENTALS and Gamma Communications 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 Gamma Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between UNITED RENTALS and Gamma Communications plc, you can compare the effects of market volatilities on UNITED RENTALS and Gamma Communications 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 Gamma Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of UNITED RENTALS and Gamma Communications.

Diversification Opportunities for UNITED RENTALS and Gamma Communications

0.59

Correlation Coefficient

UNITED RENTALS  Gamma Communications

Very weak diversification

The 3 months correlation between UNITED and Gamma is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding UNITED RENTALS and Gamma Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gamma Communications plc 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 Gamma Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gamma Communications plc has no effect on the direction of UNITED RENTALS i.e., UNITED RENTALS and Gamma Communications go up and down completely randomly.

Pair Corralation between UNITED RENTALS and Gamma Communications

Assuming the 90 days trading horizon UNITED RENTALS is expected to generate 0.9 times more return on investment than Gamma Communications. However, UNITED RENTALS is 1.11 times less risky than Gamma Communications. It trades about 0.14 of its potential returns per unit of risk. Gamma Communications plc is currently generating about 0.06 per unit of risk. If you would invest  31,665  in UNITED RENTALS on February 16, 2024 and sell it today you would earn a total of  33,415  from holding UNITED RENTALS or generate 105.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.6%
Values	Daily Returns

UNITED RENTALS  vs.  Gamma Communications plc

UNITED RENTALS

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in UNITED RENTALS are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, UNITED RENTALS is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Gamma Communications plc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gamma Communications plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Gamma Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UNITED RENTALS and Gamma Communications

The main advantage of trading using opposite UNITED RENTALS and Gamma Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UNITED RENTALS position performs unexpectedly, Gamma Communications 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 Gamma Communications will offset losses from the drop in Gamma Communications' long position.

The idea behind UNITED RENTALS and Gamma Communications plc 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.