Correlation Between Spring Valley and Caterpillar

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

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

Diversification Opportunities for Spring Valley and Caterpillar

0.51

Correlation Coefficient

Spring Valley  Caterpillar

Very weak diversification

The 3 months correlation between Spring and Caterpillar is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Spring Valley Acquisition and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Spring Valley 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 Spring Valley Acquisition 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 Spring Valley i.e., Spring Valley and Caterpillar go up and down completely randomly.

Pair Corralation between Spring Valley and Caterpillar

Given the investment horizon of 90 days Spring Valley is expected to generate 31.49 times less return on investment than Caterpillar. But when comparing it to its historical volatility, Spring Valley Acquisition is 3.85 times less risky than Caterpillar. It trades about 0.02 of its potential returns per unit of risk. Caterpillar is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  33,902  in Caterpillar on September 2, 2024 and sell it today you would earn a total of  6,709  from holding Caterpillar or generate 19.79% return on investment over 90 days.

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

Spring Valley Acquisition  vs.  Caterpillar

Spring Valley Acquisition

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Spring Valley Acquisition are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, Spring Valley is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

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.

Pair Trading with Spring Valley and Caterpillar

The main advantage of trading using opposite Spring Valley and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spring Valley 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 Spring Valley Acquisition 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..