Correlation Between Caterpillar and Insignia Systems
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Insignia Systems 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 Insignia Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Insignia Systems, you can compare the effects of market volatilities on Caterpillar and Insignia Systems 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 Insignia Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Insignia Systems.
Diversification Opportunities for Caterpillar and Insignia Systems
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and Insignia is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Insignia Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insignia Systems 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 Insignia Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insignia Systems has no effect on the direction of Caterpillar i.e., Caterpillar and Insignia Systems go up and down completely randomly.
Pair Corralation between Caterpillar and Insignia Systems
Considering the 90-day investment horizon Caterpillar is expected to generate 0.55 times more return on investment than Insignia Systems. However, Caterpillar is 1.82 times less risky than Insignia Systems. It trades about 0.08 of its potential returns per unit of risk. Insignia Systems is currently generating about -0.02 per unit of risk. If you would invest 22,712 in Caterpillar on September 3, 2024 and sell it today you would earn a total of 17,899 from holding Caterpillar or generate 78.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 30.91% |
| Values | Daily Returns |
Caterpillar vs. Insignia Systems
Performance |
| Timeline |
| Caterpillar |
| Insignia Systems |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Caterpillar and Insignia Systems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Insignia Systems
The main advantage of trading using opposite Caterpillar and Insignia Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Insignia Systems 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 Insignia Systems will offset losses from the drop in Insignia Systems' long position.| Caterpillar vs. Partner Communications | Caterpillar vs. Merck Company | Caterpillar vs. Western Midstream Partners | Caterpillar vs. Edgewise Therapeutics |
| Insignia Systems vs. Steel Connect | Insignia Systems vs. Baosheng Media Group | Insignia Systems vs. Impact Fusion International | Insignia Systems vs. Clubhouse Media Group |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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