Correlation Between Diageo Plc and United Rentals

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

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

Diversification Opportunities for Diageo Plc and United Rentals

-0.41

Correlation Coefficient

Diageo Plc  United Rentals

Very good diversification

The 3 months correlation between Diageo and United is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Diageo plc and United Rentals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Rentals and Diageo Plc 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 Diageo plc 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 Diageo Plc i.e., Diageo Plc and United Rentals go up and down completely randomly.

Pair Corralation between Diageo Plc and United Rentals

Assuming the 90 days trading horizon Diageo plc is expected to under-perform the United Rentals. But the stock apears to be less risky and, when comparing its historical volatility, Diageo plc is 1.12 times less risky than United Rentals. The stock trades about -0.05 of its potential returns per unit of risk. The United Rentals is currently generating about 0.48 of returns per unit of risk over similar time horizon. If you would invest  59,000  in United Rentals on April 18, 2025 and sell it today you would earn a total of  10,560  from holding United Rentals or generate 17.9% return on investment over 90 days.

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

Diageo plc  vs.  United Rentals

Diageo plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diageo plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's forward indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

United Rentals

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in United Rentals are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, United Rentals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diageo Plc and United Rentals

The main advantage of trading using opposite Diageo Plc and United Rentals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo Plc 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 Diageo plc 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.