Correlation Between Fortran Corp and Caterpillar

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

By analyzing existing cross correlation between Fortran Corp and Caterpillar, you can compare the effects of market volatilities on Fortran Corp and Caterpillar 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 Fortran Corp with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortran Corp and Caterpillar.

Diversification Opportunities for Fortran Corp and Caterpillar

0.18

Correlation Coefficient

Fortran Corp  Caterpillar

Average diversification

The 3 months correlation between Fortran and Caterpillar is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Fortran Corp and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Fortran Corp 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 Fortran Corp are associated (or correlated) with Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of Fortran Corp i.e., Fortran Corp and Caterpillar go up and down completely randomly.

Pair Corralation between Fortran Corp and Caterpillar

Given the investment horizon of 90 days Fortran Corp is expected to generate 16.47 times more return on investment than Caterpillar. However, Fortran Corp is 16.47 times more volatile than Caterpillar. It trades about 0.16 of its potential returns per unit of risk. Caterpillar is currently generating about 0.0 per unit of risk. If you would invest  1.22  in Fortran Corp on September 22, 2024 and sell it today you would earn a total of  1.27  from holding Fortran Corp or generate 104.1% return on investment over 90 days.

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

Fortran Corp  vs.  Caterpillar

Fortran Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fortran Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Fortran Corp displayed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Fortran Corp and Caterpillar

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

The idea behind Fortran Corp and Caterpillar 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.