Correlation Between Caterpillar and Ceylon Graphite

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

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

Diversification Opportunities for Caterpillar and Ceylon Graphite

-0.39

Correlation Coefficient

Caterpillar  Ceylon Graphite

Very good diversification

The 3 months correlation between Caterpillar and Ceylon is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Ceylon Graphite Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Graphite Corp 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 Ceylon Graphite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Graphite Corp has no effect on the direction of Caterpillar i.e., Caterpillar and Ceylon Graphite go up and down completely randomly.

Pair Corralation between Caterpillar and Ceylon Graphite

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Ceylon Graphite. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 22.75 times less risky than Ceylon Graphite. The stock trades about -0.08 of its potential returns per unit of risk. The Ceylon Graphite Corp is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1.11  in Ceylon Graphite Corp on December 30, 2024 and sell it today you would earn a total of  1.29  from holding Ceylon Graphite Corp or generate 116.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Caterpillar  vs.  Ceylon Graphite Corp

Caterpillar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Ceylon Graphite Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ceylon Graphite Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ceylon Graphite reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Ceylon Graphite

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

The idea behind Caterpillar and Ceylon Graphite Corp 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.