Correlation Between Caterpillar and Pacer Lunt
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Pacer Lunt 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 Pacer Lunt into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Pacer Lunt Large, you can compare the effects of market volatilities on Caterpillar and Pacer Lunt 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 Pacer Lunt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Pacer Lunt.
Diversification Opportunities for Caterpillar and Pacer Lunt
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and Pacer is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Pacer Lunt Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Lunt Large 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 Pacer Lunt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Lunt Large has no effect on the direction of Caterpillar i.e., Caterpillar and Pacer Lunt go up and down completely randomly.
Pair Corralation between Caterpillar and Pacer Lunt
Considering the 90-day investment horizon Caterpillar is expected to generate 4.38 times more return on investment than Pacer Lunt. However, Caterpillar is 4.38 times more volatile than Pacer Lunt Large. It trades about 0.17 of its potential returns per unit of risk. Pacer Lunt Large is currently generating about 0.51 per unit of risk. If you would invest 37,652 in Caterpillar on September 3, 2024 and sell it today you would earn a total of 2,959 from holding Caterpillar or generate 7.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Pacer Lunt Large
Performance |
| Timeline |
| Caterpillar |
| Pacer Lunt Large |
Caterpillar and Pacer Lunt Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Pacer Lunt
The main advantage of trading using opposite Caterpillar and Pacer Lunt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Pacer Lunt 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 Pacer Lunt will offset losses from the drop in Pacer Lunt's long position.| Caterpillar vs. Partner Communications | Caterpillar vs. Merck Company | Caterpillar vs. Western Midstream Partners | Caterpillar vs. Edgewise Therapeutics |
| Pacer Lunt vs. Pacer Lunt Large | Pacer Lunt vs. Pacer Small Cap | Pacer Lunt vs. Pacer Lunt MidCap | Pacer Lunt vs. Pacer Cash Cows |
Check out your portfolio center.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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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