Correlation Between Caterpillar and Decibel Cannabis

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

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

Diversification Opportunities for Caterpillar and Decibel Cannabis

0.19

Correlation Coefficient

Caterpillar  Decibel Cannabis

Average diversification

The 3 months correlation between Caterpillar and Decibel is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Decibel Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Decibel Cannabis 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 Decibel Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Decibel Cannabis has no effect on the direction of Caterpillar i.e., Caterpillar and Decibel Cannabis go up and down completely randomly.

Pair Corralation between Caterpillar and Decibel Cannabis

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Decibel Cannabis. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 3.43 times less risky than Decibel Cannabis. The stock trades about -0.08 of its potential returns per unit of risk. The Decibel Cannabis is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  5.07  in Decibel Cannabis on December 30, 2024 and sell it today you would lose (0.30) from holding Decibel Cannabis or give up 5.92% of portfolio value over 90 days.

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

Caterpillar  vs.  Decibel Cannabis

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.

Decibel Cannabis

Risk-Adjusted Performance

Very Weak

Over the last 90 days Decibel Cannabis has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Decibel Cannabis is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Caterpillar and Decibel Cannabis

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

The idea behind Caterpillar and Decibel Cannabis 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.