Correlation Between Caterpillar and Jackson Financial
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Jackson Financial 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 Jackson Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Jackson Financial, you can compare the effects of market volatilities on Caterpillar and Jackson Financial 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 Jackson Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Jackson Financial.
Diversification Opportunities for Caterpillar and Jackson Financial
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and Jackson is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Jackson Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jackson Financial 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 Jackson Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jackson Financial has no effect on the direction of Caterpillar i.e., Caterpillar and Jackson Financial go up and down completely randomly.
Pair Corralation between Caterpillar and Jackson Financial
Considering the 90-day investment horizon Caterpillar is expected to generate 3.59 times more return on investment than Jackson Financial. However, Caterpillar is 3.59 times more volatile than Jackson Financial. It trades about 0.16 of its potential returns per unit of risk. Jackson Financial is currently generating about 0.18 per unit of risk. If you would invest 33,902 in Caterpillar on September 3, 2024 and sell it today you would earn a total of 6,709 from holding Caterpillar or generate 19.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Jackson Financial
Performance |
| Timeline |
| Caterpillar |
| Jackson Financial |
Caterpillar and Jackson Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Jackson Financial
The main advantage of trading using opposite Caterpillar and Jackson Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Jackson Financial 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 Jackson Financial will offset losses from the drop in Jackson Financial's long position.| Caterpillar vs. Partner Communications | Caterpillar vs. Merck Company | Caterpillar vs. Western Midstream Partners | Caterpillar vs. Edgewise Therapeutics |
| Jackson Financial vs. Analog Devices | Jackson Financial vs. Tencent Music Entertainment | Jackson Financial vs. RBC Bearings Incorporated | Jackson Financial vs. BioNTech SE |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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