Correlation Between AVITA Medical and Caterpillar

Can any of the company-specific risk be diversified away by investing in both AVITA Medical 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 AVITA Medical and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AVITA Medical and Caterpillar, you can compare the effects of market volatilities on AVITA Medical 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 AVITA Medical with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of AVITA Medical and Caterpillar.

Diversification Opportunities for AVITA Medical and Caterpillar

0.83

Correlation Coefficient

AVITA Medical  Caterpillar

Very poor diversification

The 3 months correlation between AVITA and Caterpillar is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding AVITA Medical and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and AVITA Medical 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 AVITA Medical 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 AVITA Medical i.e., AVITA Medical and Caterpillar go up and down completely randomly.

Pair Corralation between AVITA Medical and Caterpillar

Assuming the 90 days trading horizon AVITA Medical is expected to generate 1.86 times more return on investment than Caterpillar. However, AVITA Medical is 1.86 times more volatile than Caterpillar. It trades about 0.21 of its potential returns per unit of risk. Caterpillar is currently generating about 0.2 per unit of risk. If you would invest  151.00  in AVITA Medical on September 5, 2024 and sell it today you would earn a total of  85.00  from holding AVITA Medical or generate 56.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

AVITA Medical  vs.  Caterpillar

AVITA Medical

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AVITA Medical are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward-looking signals, AVITA Medical reported solid returns over the last few months and may actually be approaching a breakup point.

Caterpillar

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Caterpillar exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AVITA Medical and Caterpillar

The main advantage of trading using opposite AVITA Medical and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AVITA Medical 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.

The idea behind AVITA Medical and Caterpillar pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.