Correlation Between Caterpillar and PetIQ

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

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

Diversification Opportunities for Caterpillar and PetIQ

0.85

Correlation Coefficient

Caterpillar  PetIQ

Very poor diversification

The 3 months correlation between Caterpillar and PetIQ is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and PetIQ Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetIQ Inc 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 PetIQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetIQ Inc has no effect on the direction of Caterpillar i.e., Caterpillar and PetIQ go up and down completely randomly.

Pair Corralation between Caterpillar and PetIQ

Considering the 90-day investment horizon Caterpillar is expected to generate 25.84 times more return on investment than PetIQ. However, Caterpillar is 25.84 times more volatile than PetIQ Inc. It trades about 0.11 of its potential returns per unit of risk. PetIQ Inc is currently generating about 0.43 per unit of risk. If you would invest  34,407  in Caterpillar on September 13, 2024 and sell it today you would earn a total of  4,432  from holding Caterpillar or generate 12.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	49.21%
Values	Daily Returns

Caterpillar  vs.  PetIQ Inc

Caterpillar

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

PetIQ Inc

Risk-Adjusted Performance

0 of 100

Very Strong

Over the last 90 days PetIQ Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, PetIQ is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Caterpillar and PetIQ

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

The idea behind Caterpillar and PetIQ Inc 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.