Correlation Between Caterpillar and Southwestern Energy
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Southwestern Energy 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 Southwestern Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Southwestern Energy, you can compare the effects of market volatilities on Caterpillar and Southwestern Energy 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 Southwestern Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Southwestern Energy.
Diversification Opportunities for Caterpillar and Southwestern Energy
-0.63 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Caterpillar and Southwestern is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Southwestern Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwestern Energy 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 Southwestern Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwestern Energy has no effect on the direction of Caterpillar i.e., Caterpillar and Southwestern Energy go up and down completely randomly.
Pair Corralation between Caterpillar and Southwestern Energy
If you would invest 39,061 in Caterpillar on August 28, 2024 and sell it today you would earn a total of 1,504 from holding Caterpillar or generate 3.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 4.76% |
| Values | Daily Returns |
Caterpillar vs. Southwestern Energy
Performance |
| Timeline |
| Caterpillar |
| Southwestern Energy |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Solid
Caterpillar and Southwestern Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Southwestern Energy
The main advantage of trading using opposite Caterpillar and Southwestern Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Southwestern Energy 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 Southwestern Energy will offset losses from the drop in Southwestern Energy's long position.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar vs. AGCO Corporation |
| Southwestern Energy vs. Antero Resources Corp | Southwestern Energy vs. EQT Corporation | Southwestern Energy vs. Matador Resources | Southwestern Energy vs. Range Resources Corp |
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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