Correlation Between Caterpillar and Parafin Corp
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Parafin Corp 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 Parafin Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Parafin Corp, you can compare the effects of market volatilities on Caterpillar and Parafin Corp 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 Parafin Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Parafin Corp.
Diversification Opportunities for Caterpillar and Parafin Corp
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Caterpillar and Parafin is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Parafin Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parafin Corp 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 Parafin Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parafin Corp has no effect on the direction of Caterpillar i.e., Caterpillar and Parafin Corp go up and down completely randomly.
Pair Corralation between Caterpillar and Parafin Corp
Considering the 90-day investment horizon Caterpillar is expected to generate 0.17 times more return on investment than Parafin Corp. However, Caterpillar is 5.8 times less risky than Parafin Corp. It trades about 0.11 of its potential returns per unit of risk. Parafin Corp is currently generating about -0.1 per unit of risk. If you would invest 32,694 in Caterpillar on September 3, 2024 and sell it today you would earn a total of 7,917 from holding Caterpillar or generate 24.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 78.4% |
| Values | Daily Returns |
Caterpillar vs. Parafin Corp
Performance |
| Timeline |
| Caterpillar |
| Parafin Corp |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Caterpillar and Parafin Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Parafin Corp
The main advantage of trading using opposite Caterpillar and Parafin Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Parafin Corp 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 Parafin Corp will offset losses from the drop in Parafin Corp's long position.| Caterpillar vs. Partner Communications | Caterpillar vs. Merck Company | Caterpillar vs. Western Midstream Partners | Caterpillar vs. Edgewise Therapeutics |
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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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