Correlation Between Caterpillar and Jackpot Digital

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

By analyzing existing cross correlation between Caterpillar and Jackpot Digital, you can compare the effects of market volatilities on Caterpillar and Jackpot Digital 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 Jackpot Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Jackpot Digital.

Diversification Opportunities for Caterpillar and Jackpot Digital

-0.37

Correlation Coefficient

Caterpillar  Jackpot Digital

Very good diversification

The 3 months correlation between Caterpillar and Jackpot is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Jackpot Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jackpot Digital 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 Jackpot Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jackpot Digital has no effect on the direction of Caterpillar i.e., Caterpillar and Jackpot Digital go up and down completely randomly.

Pair Corralation between Caterpillar and Jackpot Digital

Considering the 90-day investment horizon Caterpillar is expected to generate 1.13 times less return on investment than Jackpot Digital. But when comparing it to its historical volatility, Caterpillar is 3.7 times less risky than Jackpot Digital. It trades about 0.08 of its potential returns per unit of risk. Jackpot Digital is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  6.06  in Jackpot Digital on September 6, 2024 and sell it today you would lose (1.36) from holding Jackpot Digital or give up 22.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Caterpillar  vs.  Jackpot Digital

Caterpillar

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Jackpot Digital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jackpot Digital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Jackpot Digital is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Caterpillar and Jackpot Digital

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

The idea behind Caterpillar and Jackpot Digital 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.