Can any of the company-specific risk be diversified away by investing in both Willis Lease and U Haul 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 Willis Lease and U Haul into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Willis Lease Finance and U Haul Holding, you can compare the effects of market volatilities on Willis Lease and U Haul 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 Willis Lease with a short position of U Haul. Check out your portfolio center. Please also check ongoing floating volatility patterns of Willis Lease and U Haul.
Diversification Opportunities for Willis Lease and U Haul
The 3 months correlation between Willis and UHAL is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Willis Lease Finance and U-Haul Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on U-Haul Holding and Willis Lease 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 Willis Lease Finance are associated (or correlated) with U Haul. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of U-Haul Holding has no effect on the direction of Willis Lease i.e., Willis Lease and U Haul go up and down completely randomly.
Given the investment horizon of 90 days Willis Lease Finance is expected to generate 1.17 times more return on investment than U Haul. However, Willis Lease is 1.17 times more volatile than U Haul Holding. It trades about 0.13 of its potential returns per unit of risk. U Haul Holding is currently generating about 0.04 per unit of risk. If you would invest 4,095 in Willis Lease Finance on September 9, 2023 and sell it today you would earn a total of 655.00 from holding Willis Lease Finance or generate 16.0% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Willis Lease Finance are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Willis Lease exhibited solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in U Haul Holding are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, U Haul is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.
The main advantage of trading using opposite Willis Lease and U Haul positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Willis Lease position performs unexpectedly, U Haul 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 U Haul will offset losses from the drop in U Haul's long position.
The idea behind Willis Lease Finance and U Haul Holding 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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