Correlation Between Caterpillar and Inrad Optics

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Can any of the company-specific risk be diversified away by investing in both Caterpillar and Inrad Optics 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 Inrad Optics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Inrad Optics, you can compare the effects of market volatilities on Caterpillar and Inrad Optics 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 Inrad Optics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Inrad Optics.

Diversification Opportunities for Caterpillar and Inrad Optics

-0.42
  Correlation Coefficient

Very good diversification

The 3 months correlation between Caterpillar and Inrad is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Inrad Optics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inrad Optics 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 Inrad Optics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inrad Optics has no effect on the direction of Caterpillar i.e., Caterpillar and Inrad Optics go up and down completely randomly.

Pair Corralation between Caterpillar and Inrad Optics

Considering the 90-day investment horizon Caterpillar is expected to generate 0.34 times more return on investment than Inrad Optics. However, Caterpillar is 2.94 times less risky than Inrad Optics. It trades about 0.08 of its potential returns per unit of risk. Inrad Optics is currently generating about 0.0 per unit of risk. If you would invest  22,017  in Caterpillar on August 27, 2024 and sell it today you would earn a total of  17,732  from holding Caterpillar or generate 80.54% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy79.44%
ValuesDaily Returns

Caterpillar  vs.  Inrad Optics

 Performance 
       Timeline  
Caterpillar 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.
Inrad Optics 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Inrad Optics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Inrad Optics is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Caterpillar and Inrad Optics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and Inrad Optics

The main advantage of trading using opposite Caterpillar and Inrad Optics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Inrad Optics 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 Inrad Optics will offset losses from the drop in Inrad Optics' long position.
The idea behind Caterpillar and Inrad Optics pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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