Correlation Between Caterpillar and Fandom Sports

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

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

Diversification Opportunities for Caterpillar and Fandom Sports

0.37

Correlation Coefficient

Caterpillar  Fandom Sports

Weak diversification

The 3 months correlation between Caterpillar and Fandom is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Fandom Sports Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fandom Sports Media 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 Fandom Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fandom Sports Media has no effect on the direction of Caterpillar i.e., Caterpillar and Fandom Sports go up and down completely randomly.

Pair Corralation between Caterpillar and Fandom Sports

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Fandom Sports. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 145.54 times less risky than Fandom Sports. The stock trades about -0.08 of its potential returns per unit of risk. The Fandom Sports Media is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  0.45  in Fandom Sports Media on December 30, 2024 and sell it today you would lose (0.42) from holding Fandom Sports Media or give up 93.33% of portfolio value over 90 days.

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

Caterpillar  vs.  Fandom Sports Media

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.

Fandom Sports Media

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fandom Sports Media are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Fandom Sports reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Fandom Sports

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

The idea behind Caterpillar and Fandom Sports Media 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.