Correlation Between Caterpillar and The Dreyfus

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

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

Diversification Opportunities for Caterpillar and The Dreyfus

0.75

Correlation Coefficient

Caterpillar  The Dreyfus

Poor diversification

The 3 months correlation between Caterpillar and The is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and The Dreyfus Sustainable in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Dreyfus Sustainable 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 The Dreyfus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Dreyfus Sustainable has no effect on the direction of Caterpillar i.e., Caterpillar and The Dreyfus go up and down completely randomly.

Pair Corralation between Caterpillar and The Dreyfus

Considering the 90-day investment horizon Caterpillar is expected to under-perform the The Dreyfus. In addition to that, Caterpillar is 1.5 times more volatile than The Dreyfus Sustainable. It trades about -0.08 of its total potential returns per unit of risk. The Dreyfus Sustainable is currently generating about -0.11 per unit of volatility. If you would invest  1,433  in The Dreyfus Sustainable on December 29, 2024 and sell it today you would lose (115.00) from holding The Dreyfus Sustainable or give up 8.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Caterpillar  vs.  The Dreyfus Sustainable

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.

The Dreyfus Sustainable

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Dreyfus Sustainable has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Caterpillar and The Dreyfus

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

The idea behind Caterpillar and The Dreyfus Sustainable 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.