Correlation Between Caterpillar and WuXi Biologics
Can any of the company-specific risk be diversified away by investing in both Caterpillar and WuXi Biologics 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 WuXi Biologics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and WuXi Biologics, you can compare the effects of market volatilities on Caterpillar and WuXi Biologics 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 WuXi Biologics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and WuXi Biologics.
Diversification Opportunities for Caterpillar and WuXi Biologics
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and WuXi is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and WuXi Biologics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WuXi Biologics 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 WuXi Biologics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WuXi Biologics has no effect on the direction of Caterpillar i.e., Caterpillar and WuXi Biologics go up and down completely randomly.
Pair Corralation between Caterpillar and WuXi Biologics
Considering the 90-day investment horizon Caterpillar is expected to generate 0.34 times more return on investment than WuXi Biologics. However, Caterpillar is 2.92 times less risky than WuXi Biologics. It trades about 0.09 of its potential returns per unit of risk. WuXi Biologics is currently generating about -0.01 per unit of risk. If you would invest 28,120 in Caterpillar on September 12, 2024 and sell it today you would earn a total of 10,719 from holding Caterpillar or generate 38.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Caterpillar vs. WuXi Biologics
Performance |
| Timeline |
| Caterpillar |
| WuXi Biologics |
Caterpillar and WuXi Biologics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and WuXi Biologics
The main advantage of trading using opposite Caterpillar and WuXi Biologics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, WuXi Biologics 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 WuXi Biologics will offset losses from the drop in WuXi Biologics' long position.| Caterpillar vs. Victory Integrity Smallmid Cap | Caterpillar vs. Hilton Worldwide Holdings | Caterpillar vs. NVIDIA | Caterpillar vs. JPMorgan Chase Co |
| WuXi Biologics vs. Inhibikase Therapeutics | WuXi Biologics vs. Corcept Therapeutics Incorporated | WuXi Biologics vs. Cardio Diagnostics Holdings | WuXi Biologics vs. Revolution Medicines |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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