Correlation Between Caterpillar and 4Front Ventures

Can any of the company-specific risk be diversified away by investing in both Caterpillar and 4Front Ventures 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 4Front Ventures into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caterpillar and 4Front Ventures Corp, you can compare the effects of market volatilities on Caterpillar and 4Front Ventures 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 4Front Ventures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and 4Front Ventures.

Diversification Opportunities for Caterpillar and 4Front Ventures

-0.27

Correlation Coefficient

Caterpillar  4Front Ventures

Very good diversification

The 3 months correlation between Caterpillar and 4Front is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and 4Front Ventures Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 4Front Ventures 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 4Front Ventures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 4Front Ventures Corp has no effect on the direction of Caterpillar i.e., Caterpillar and 4Front Ventures go up and down completely randomly.

Pair Corralation between Caterpillar and 4Front Ventures

Considering the 90-day investment horizon Caterpillar is expected to under-perform the 4Front Ventures. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 10.69 times less risky than 4Front Ventures. The stock trades about -0.06 of its potential returns per unit of risk. The 4Front Ventures Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1.71  in 4Front Ventures Corp on December 27, 2024 and sell it today you would earn a total of  0.04  from holding 4Front Ventures Corp or generate 2.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Caterpillar  vs.  4Front Ventures 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 comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

4Front Ventures Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in 4Front Ventures Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, 4Front Ventures reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and 4Front Ventures

The main advantage of trading using opposite Caterpillar and 4Front Ventures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, 4Front Ventures 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 4Front Ventures will offset losses from the drop in 4Front Ventures' long position.

The idea behind Caterpillar and 4Front Ventures 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.