Correlation Between Caterpillar and Forum Energy
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Forum Energy 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 Forum Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Forum Energy Metals, you can compare the effects of market volatilities on Caterpillar and Forum Energy 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 Forum Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Forum Energy.
Diversification Opportunities for Caterpillar and Forum Energy
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and Forum is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Forum Energy Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forum Energy Metals 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 Forum Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forum Energy Metals has no effect on the direction of Caterpillar i.e., Caterpillar and Forum Energy go up and down completely randomly.
Pair Corralation between Caterpillar and Forum Energy
Considering the 90-day investment horizon Caterpillar is expected to generate 0.23 times more return on investment than Forum Energy. However, Caterpillar is 4.37 times less risky than Forum Energy. It trades about 0.16 of its potential returns per unit of risk. Forum Energy Metals is currently generating about -0.05 per unit of risk. If you would invest 37,620 in Caterpillar on September 1, 2024 and sell it today you would earn a total of 2,991 from holding Caterpillar or generate 7.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Forum Energy Metals
Performance |
| Timeline |
| Caterpillar |
| Forum Energy Metals |
Caterpillar and Forum Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Forum Energy
The main advantage of trading using opposite Caterpillar and Forum Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Forum Energy 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 Forum Energy will offset losses from the drop in Forum Energy's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
| Forum Energy vs. Petroleo Brasileiro Petrobras | Forum Energy vs. Equinor ASA ADR | Forum Energy vs. Eni SpA ADR | Forum Energy vs. YPF Sociedad Anonima |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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