Correlation Between Snap On and United Rentals

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

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

Diversification Opportunities for Snap On and United Rentals

0.56

Correlation Coefficient

Snap On  United Rentals

Very weak diversification

The 3 months correlation between Snap and United is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Snap On and United Rentals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Rentals and Snap On 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 Snap On 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 Snap On i.e., Snap On and United Rentals go up and down completely randomly.

Pair Corralation between Snap On and United Rentals

Considering the 90-day investment horizon Snap On is expected to under-perform the United Rentals. But the stock apears to be less risky and, when comparing its historical volatility, Snap On is 1.34 times less risky than United Rentals. The stock trades about -0.14 of its potential returns per unit of risk. The United Rentals is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  70,296  in United Rentals on February 7, 2024 and sell it today you would lose (1,962) from holding United Rentals or give up 2.79% of portfolio value over 90 days.

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

Snap On  vs.  United Rentals

Snap On

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Snap On has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Snap On is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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. Despite fairly strong basic indicators, United Rentals is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Snap On and United Rentals

The main advantage of trading using opposite Snap On and United Rentals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Snap On 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 Snap On 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.