Correlation Between Caterpillar and HUBBELL

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

By analyzing existing cross correlation between Caterpillar and HUBBELL INC 35, you can compare the effects of market volatilities on Caterpillar and HUBBELL 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 HUBBELL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and HUBBELL.

Diversification Opportunities for Caterpillar and HUBBELL

-0.42

Correlation Coefficient

Caterpillar  HUBBELL

Very good diversification

The 3 months correlation between Caterpillar and HUBBELL is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and HUBBELL INC 35 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUBBELL INC 35 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 HUBBELL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HUBBELL INC 35 has no effect on the direction of Caterpillar i.e., Caterpillar and HUBBELL go up and down completely randomly.

Pair Corralation between Caterpillar and HUBBELL

Considering the 90-day investment horizon Caterpillar is expected to generate 2.57 times more return on investment than HUBBELL. However, Caterpillar is 2.57 times more volatile than HUBBELL INC 35. It trades about 0.15 of its potential returns per unit of risk. HUBBELL INC 35 is currently generating about -0.11 per unit of risk. If you would invest  33,902  in Caterpillar on September 3, 2024 and sell it today you would earn a total of  6,349  from holding Caterpillar or generate 18.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	85.94%
Values	Daily Returns

Caterpillar  vs.  HUBBELL INC 35

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 fragile basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

HUBBELL INC 35

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HUBBELL INC 35 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, HUBBELL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and HUBBELL

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

The idea behind Caterpillar and HUBBELL INC 35 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.