Correlation Between Caterpillar and ProShares Large

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

By analyzing existing cross correlation between Caterpillar and ProShares Large Cap, you can compare the effects of market volatilities on Caterpillar and ProShares Large 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 ProShares Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and ProShares Large.

Diversification Opportunities for Caterpillar and ProShares Large

0.61

Correlation Coefficient

Caterpillar  ProShares Large

Poor diversification

The 3 months correlation between Caterpillar and ProShares is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and ProShares Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Large Cap 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 ProShares Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Large Cap has no effect on the direction of Caterpillar i.e., Caterpillar and ProShares Large go up and down completely randomly.

Pair Corralation between Caterpillar and ProShares Large

Considering the 90-day investment horizon Caterpillar is expected to under-perform the ProShares Large. In addition to that, Caterpillar is 2.16 times more volatile than ProShares Large Cap. It trades about -0.17 of its total potential returns per unit of risk. ProShares Large Cap is currently generating about -0.08 per unit of volatility. If you would invest  6,699  in ProShares Large Cap on September 20, 2024 and sell it today you would lose (83.00) from holding ProShares Large Cap or give up 1.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Caterpillar  vs.  ProShares Large Cap

Caterpillar

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

ProShares Large Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Large Cap are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, ProShares Large is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and ProShares Large

The main advantage of trading using opposite Caterpillar and ProShares Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, ProShares Large 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 ProShares Large will offset losses from the drop in ProShares Large's long position.

The idea behind Caterpillar and ProShares Large Cap 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 Commodity Directory module to find actively traded commodities issued by global exchanges.