Correlation Between Caterpillar and Spectral Cap

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

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

Diversification Opportunities for Caterpillar and Spectral Cap

0.26

Correlation Coefficient

Caterpillar  Spectral Cap

Modest diversification

The 3 months correlation between Caterpillar and Spectral is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Spectral Cap Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spectral Cap Corp and Caterpillar 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 Caterpillar are associated (or correlated) with Spectral Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spectral Cap Corp has no effect on the direction of Caterpillar i.e., Caterpillar and Spectral Cap go up and down completely randomly.

Pair Corralation between Caterpillar and Spectral Cap

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Spectral Cap. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 4.5 times less risky than Spectral Cap. The stock trades about -0.06 of its potential returns per unit of risk. The Spectral Cap Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  443.00  in Spectral Cap Corp on September 20, 2024 and sell it today you would earn a total of  27.00  from holding Spectral Cap Corp or generate 6.09% return on investment over 90 days.

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

Caterpillar  vs.  Spectral Cap Corp

Caterpillar

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Spectral Cap Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Spectral Cap Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, Spectral Cap displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Spectral Cap

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

The idea behind Caterpillar and Spectral Cap Corp 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.