Correlation Between Caterpillar and Univec
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Univec 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 Univec into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Univec Inc, you can compare the effects of market volatilities on Caterpillar and Univec 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 Univec. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Univec.
Diversification Opportunities for Caterpillar and Univec
-0.7 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Caterpillar and Univec is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Univec Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Univec Inc 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 Univec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Univec Inc has no effect on the direction of Caterpillar i.e., Caterpillar and Univec go up and down completely randomly.
Pair Corralation between Caterpillar and Univec
Considering the 90-day investment horizon Caterpillar is expected to generate 2.76 times less return on investment than Univec. But when comparing it to its historical volatility, Caterpillar is 3.47 times less risky than Univec. It trades about 0.15 of its potential returns per unit of risk. Univec Inc is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 0.28 in Univec Inc on September 3, 2024 and sell it today you would earn a total of 0.04 from holding Univec Inc or generate 14.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Univec Inc
Performance |
| Timeline |
| Caterpillar |
| Univec Inc |
Caterpillar and Univec Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Univec
The main advantage of trading using opposite Caterpillar and Univec positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Univec 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 Univec will offset losses from the drop in Univec'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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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