Correlation Between Caterpillar and Progressive Planet
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Progressive Planet 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 Progressive Planet into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Progressive Planet Solutions, you can compare the effects of market volatilities on Caterpillar and Progressive Planet 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 Progressive Planet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Progressive Planet.
Diversification Opportunities for Caterpillar and Progressive Planet
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and Progressive is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Progressive Planet Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Progressive Planet 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 Progressive Planet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Progressive Planet has no effect on the direction of Caterpillar i.e., Caterpillar and Progressive Planet go up and down completely randomly.
Pair Corralation between Caterpillar and Progressive Planet
Considering the 90-day investment horizon Caterpillar is expected to generate 3.57 times less return on investment than Progressive Planet. But when comparing it to its historical volatility, Caterpillar is 4.24 times less risky than Progressive Planet. It trades about 0.11 of its potential returns per unit of risk. Progressive Planet Solutions is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 7.60 in Progressive Planet Solutions on September 3, 2024 and sell it today you would earn a total of 5.40 from holding Progressive Planet Solutions or generate 71.05% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Caterpillar vs. Progressive Planet Solutions
Performance |
Timeline |
Caterpillar |
Progressive Planet |
Caterpillar and Progressive Planet Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Caterpillar and Progressive Planet
The main advantage of trading using opposite Caterpillar and Progressive Planet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Progressive Planet 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 Progressive Planet will offset losses from the drop in Progressive Planet's long position.Caterpillar vs. Partner Communications | Caterpillar vs. Merck Company | Caterpillar vs. Western Midstream Partners | Caterpillar vs. Edgewise Therapeutics |
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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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