Can any of the company-specific risk be diversified away by investing in both GE Vernova 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 GE Vernova and United Rentals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GE Vernova LLC and United Rentals, you can compare the effects of market volatilities on GE Vernova 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 GE Vernova with a short position of United Rentals. Check out your portfolio center. Please also check ongoing floating volatility patterns of GE Vernova and United Rentals.
Diversification Opportunities for GE Vernova and United Rentals
The 3 months correlation between GEV and United is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding GE Vernova LLC and United Rentals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Rentals and GE Vernova 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 GE Vernova LLC 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 GE Vernova i.e., GE Vernova and United Rentals go up and down completely randomly.
Pair Corralation between GE Vernova and United Rentals
Considering the 90-day investment horizon GE Vernova LLC is expected to generate 1.38 times more return on investment than United Rentals. However, GE Vernova is 1.38 times more volatile than United Rentals. It trades about 0.18 of its potential returns per unit of risk. United Rentals is currently generating about 0.09 per unit of risk. If you would invest 13,125 in GE Vernova LLC on March 6, 2024 and sell it today you would earn a total of 3,912 from holding GE Vernova LLC or generate 29.81% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in GE Vernova LLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, GE Vernova showed solid returns over the last few months and may actually be approaching a breakup point.
Over the last 90 days United Rentals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, United Rentals is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.