Correlation Between Caterpillar and MASSACHUSETTS

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

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

Diversification Opportunities for Caterpillar and MASSACHUSETTS

-0.23

Correlation Coefficient

Caterpillar  MASSACHUSETTS

Very good diversification

The 3 months correlation between Caterpillar and MASSACHUSETTS is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and MASSACHUSETTS INST TECHNOLOGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MASSACHUSETTS INST 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 MASSACHUSETTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MASSACHUSETTS INST has no effect on the direction of Caterpillar i.e., Caterpillar and MASSACHUSETTS go up and down completely randomly.

Pair Corralation between Caterpillar and MASSACHUSETTS

Considering the 90-day investment horizon Caterpillar is expected to generate 1.17 times more return on investment than MASSACHUSETTS. However, Caterpillar is 1.17 times more volatile than MASSACHUSETTS INST TECHNOLOGY. It trades about -0.01 of its potential returns per unit of risk. MASSACHUSETTS INST TECHNOLOGY is currently generating about -0.03 per unit of risk. If you would invest  36,750  in Caterpillar on September 20, 2024 and sell it today you would lose (713.00) from holding Caterpillar or give up 1.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.63%
Values	Daily Returns

Caterpillar  vs.  MASSACHUSETTS INST TECHNOLOGY

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.

MASSACHUSETTS INST

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MASSACHUSETTS INST TECHNOLOGY has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, MASSACHUSETTS 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 MASSACHUSETTS

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

The idea behind Caterpillar and MASSACHUSETTS INST TECHNOLOGY 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.