Correlation Between Caterpillar and Steward Funds

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

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

Diversification Opportunities for Caterpillar and Steward Funds

0.81

Correlation Coefficient

Caterpillar  Steward Funds

Very poor diversification

The 3 months correlation between Caterpillar and Steward is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Steward Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steward Funds 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 Steward Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steward Funds has no effect on the direction of Caterpillar i.e., Caterpillar and Steward Funds go up and down completely randomly.

Pair Corralation between Caterpillar and Steward Funds

Considering the 90-day investment horizon Caterpillar is expected to generate 2.29 times more return on investment than Steward Funds. However, Caterpillar is 2.29 times more volatile than Steward Funds . It trades about 0.16 of its potential returns per unit of risk. Steward Funds is currently generating about 0.19 per unit of risk. If you would invest  33,554  in Caterpillar on September 4, 2024 and sell it today you would earn a total of  6,697  from holding Caterpillar or generate 19.96% return on investment over 90 days.

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

Caterpillar  vs.  Steward Funds

Caterpillar

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 12 (%) 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.

Steward Funds

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steward Funds are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Steward Funds may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Caterpillar and Steward Funds

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

The idea behind Caterpillar and Steward Funds 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.