Correlation Between Caterpillar and Direxion Daily
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Direxion Daily 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 Direxion Daily into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Direxion Daily SP, you can compare the effects of market volatilities on Caterpillar and Direxion Daily 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 Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Direxion Daily.
Diversification Opportunities for Caterpillar and Direxion Daily
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and Direxion is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Direxion Daily SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily SP 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 Direxion Daily. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Daily SP has no effect on the direction of Caterpillar i.e., Caterpillar and Direxion Daily go up and down completely randomly.
Pair Corralation between Caterpillar and Direxion Daily
Considering the 90-day investment horizon Caterpillar is expected to generate 1.18 times less return on investment than Direxion Daily. In addition to that, Caterpillar is 1.06 times more volatile than Direxion Daily SP. It trades about 0.08 of its total potential returns per unit of risk. Direxion Daily SP is currently generating about 0.09 per unit of volatility. If you would invest 7,606 in Direxion Daily SP on August 25, 2024 and sell it today you would earn a total of 7,703 from holding Direxion Daily SP or generate 101.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Direxion Daily SP
Performance |
| Timeline |
| Caterpillar |
| Direxion Daily SP |
Caterpillar and Direxion Daily Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Direxion Daily
The main advantage of trading using opposite Caterpillar and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Direxion Daily 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 Direxion Daily will offset losses from the drop in Direxion Daily's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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