Correlation Between Caterpillar and Red Moon
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Red Moon 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 Red Moon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Red Moon Resources, you can compare the effects of market volatilities on Caterpillar and Red Moon 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 Red Moon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Red Moon.
Diversification Opportunities for Caterpillar and Red Moon
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Caterpillar and Red is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Red Moon Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Moon Resources 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 Red Moon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Moon Resources has no effect on the direction of Caterpillar i.e., Caterpillar and Red Moon go up and down completely randomly.
Pair Corralation between Caterpillar and Red Moon
Considering the 90-day investment horizon Caterpillar is expected to generate 1.3 times more return on investment than Red Moon. However, Caterpillar is 1.3 times more volatile than Red Moon Resources. It trades about 0.16 of its potential returns per unit of risk. Red Moon Resources is currently generating about -0.16 per unit of risk. If you would invest 37,620 in Caterpillar on September 1, 2024 and sell it today you would earn a total of 2,991 from holding Caterpillar or generate 7.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Red Moon Resources
Performance |
| Timeline |
| Caterpillar |
| Red Moon Resources |
Caterpillar and Red Moon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Red Moon
The main advantage of trading using opposite Caterpillar and Red Moon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Red Moon 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 Red Moon will offset losses from the drop in Red Moon's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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