Correlation Between Caterpillar and Hennessy Cornerstone
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Hennessy Cornerstone 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 Hennessy Cornerstone into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Hennessy Nerstone Mid, you can compare the effects of market volatilities on Caterpillar and Hennessy Cornerstone 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 Hennessy Cornerstone. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Hennessy Cornerstone.
Diversification Opportunities for Caterpillar and Hennessy Cornerstone
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and Hennessy is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Hennessy Nerstone Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Nerstone Mid 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 Hennessy Cornerstone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Nerstone Mid has no effect on the direction of Caterpillar i.e., Caterpillar and Hennessy Cornerstone go up and down completely randomly.
Pair Corralation between Caterpillar and Hennessy Cornerstone
Considering the 90-day investment horizon Caterpillar is expected to generate 1.95 times less return on investment than Hennessy Cornerstone. In addition to that, Caterpillar is 2.01 times more volatile than Hennessy Nerstone Mid. It trades about 0.08 of its total potential returns per unit of risk. Hennessy Nerstone Mid is currently generating about 0.33 per unit of volatility. If you would invest 2,811 in Hennessy Nerstone Mid on August 28, 2024 and sell it today you would earn a total of 245.00 from holding Hennessy Nerstone Mid or generate 8.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Hennessy Nerstone Mid
Performance |
| Timeline |
| Caterpillar |
| Hennessy Nerstone Mid |
Caterpillar and Hennessy Cornerstone Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Hennessy Cornerstone
The main advantage of trading using opposite Caterpillar and Hennessy Cornerstone positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Hennessy Cornerstone 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 Hennessy Cornerstone will offset losses from the drop in Hennessy Cornerstone's long position.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar vs. AGCO Corporation |
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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