Correlation Between Caterpillar and Equitable

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

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

Diversification Opportunities for Caterpillar and Equitable

0.74

Correlation Coefficient

Caterpillar  Equitable

Poor diversification

The 3 months correlation between Caterpillar and Equitable is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Equitable Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equitable Group 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 Equitable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equitable Group has no effect on the direction of Caterpillar i.e., Caterpillar and Equitable go up and down completely randomly.

Pair Corralation between Caterpillar and Equitable

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Equitable. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 2.74 times less risky than Equitable. The stock trades about -0.35 of its potential returns per unit of risk. The Equitable Group is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  7,202  in Equitable Group on October 11, 2024 and sell it today you would earn a total of  23.00  from holding Equitable Group or generate 0.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Caterpillar  vs.  Equitable Group

Caterpillar

Risk-Adjusted Performance

0 of 100

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.

Equitable Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equitable Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Equitable 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 Equitable

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

The idea behind Caterpillar and Equitable Group 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.