Correlation Between Caterpillar and ProShares UltraShort

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

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

Diversification Opportunities for Caterpillar and ProShares UltraShort

-0.41

Correlation Coefficient

Caterpillar  ProShares UltraShort

Very good diversification

The 3 months correlation between Caterpillar and ProShares is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and ProShares UltraShort Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort 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 ProShares UltraShort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraShort has no effect on the direction of Caterpillar i.e., Caterpillar and ProShares UltraShort go up and down completely randomly.

Pair Corralation between Caterpillar and ProShares UltraShort

Considering the 90-day investment horizon Caterpillar is expected to generate 0.8 times more return on investment than ProShares UltraShort. However, Caterpillar is 1.26 times less risky than ProShares UltraShort. It trades about -0.01 of its potential returns per unit of risk. ProShares UltraShort Financials is currently generating about -0.06 per unit of risk. If you would invest  36,984  in Caterpillar on September 21, 2024 and sell it today you would lose (947.00) from holding Caterpillar or give up 2.56% of portfolio value over 90 days.

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

Caterpillar  vs.  ProShares UltraShort Financial

Caterpillar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

ProShares UltraShort

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares UltraShort Financials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Etf's forward-looking signals remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Pair Trading with Caterpillar and ProShares UltraShort

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

The idea behind Caterpillar and ProShares UltraShort Financials 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..