Correlation Between Caterpillar and Tema Oncology
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Tema Oncology 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 Tema Oncology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Tema Oncology ETF, you can compare the effects of market volatilities on Caterpillar and Tema Oncology 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 Tema Oncology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Tema Oncology.
Diversification Opportunities for Caterpillar and Tema Oncology
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and Tema is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Tema Oncology ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tema Oncology ETF 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 Tema Oncology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tema Oncology ETF has no effect on the direction of Caterpillar i.e., Caterpillar and Tema Oncology go up and down completely randomly.
Pair Corralation between Caterpillar and Tema Oncology
Considering the 90-day investment horizon Caterpillar is expected to generate 17.54 times less return on investment than Tema Oncology. But when comparing it to its historical volatility, Caterpillar is 21.18 times less risky than Tema Oncology. It trades about 0.06 of its potential returns per unit of risk. Tema Oncology ETF is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 352.00 in Tema Oncology ETF on November 9, 2024 and sell it today you would earn a total of 2,203 from holding Tema Oncology ETF or generate 625.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 75.66% |
| Values | Daily Returns |
Caterpillar vs. Tema Oncology ETF
Performance |
| Timeline |
| Caterpillar |
| Tema Oncology ETF |
Caterpillar and Tema Oncology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Tema Oncology
The main advantage of trading using opposite Caterpillar and Tema Oncology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Tema Oncology 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 Tema Oncology will offset losses from the drop in Tema Oncology's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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