Correlation Between Gencor Industries and Caterpillar
Can any of the company-specific risk be diversified away by investing in both Gencor Industries and Caterpillar 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 Gencor Industries and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gencor Industries and Caterpillar, you can compare the effects of market volatilities on Gencor Industries and Caterpillar 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 Gencor Industries with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gencor Industries and Caterpillar.
Diversification Opportunities for Gencor Industries and Caterpillar
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Gencor and Caterpillar is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Gencor Industries and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Gencor Industries 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 Gencor Industries are associated (or correlated) with Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of Gencor Industries i.e., Gencor Industries and Caterpillar go up and down completely randomly.
Pair Corralation between Gencor Industries and Caterpillar
Given the investment horizon of 90 days Gencor Industries is expected to generate 1.12 times more return on investment than Caterpillar. However, Gencor Industries is 1.12 times more volatile than Caterpillar. It trades about 0.12 of its potential returns per unit of risk. Caterpillar is currently generating about 0.12 per unit of risk. If you would invest 1,903 in Gencor Industries on September 12, 2024 and sell it today you would earn a total of 303.00 from holding Gencor Industries or generate 15.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Gencor Industries vs. Caterpillar
Performance |
| Timeline |
| Gencor Industries |
| Caterpillar |
Gencor Industries and Caterpillar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gencor Industries and Caterpillar
The main advantage of trading using opposite Gencor Industries and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gencor Industries position performs unexpectedly, Caterpillar 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 Caterpillar will offset losses from the drop in Caterpillar's long position.| Gencor Industries vs. Victory Integrity Smallmid Cap | Gencor Industries vs. Hilton Worldwide Holdings | Gencor Industries vs. NVIDIA | Gencor Industries vs. JPMorgan Chase Co |
| Caterpillar vs. Victory Integrity Smallmid Cap | Caterpillar vs. Hilton Worldwide Holdings | Caterpillar vs. NVIDIA | Caterpillar vs. JPMorgan Chase Co |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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