Correlation Between Caterpillar and Fidelity Quality

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

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

Diversification Opportunities for Caterpillar and Fidelity Quality

0.62

Correlation Coefficient

Caterpillar  Fidelity Quality

Poor diversification

The 3 months correlation between Caterpillar and Fidelity is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Fidelity Quality Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Quality Factor 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 Fidelity Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Quality Factor has no effect on the direction of Caterpillar i.e., Caterpillar and Fidelity Quality go up and down completely randomly.

Pair Corralation between Caterpillar and Fidelity Quality

Considering the 90-day investment horizon Caterpillar is expected to generate 2.31 times less return on investment than Fidelity Quality. In addition to that, Caterpillar is 2.19 times more volatile than Fidelity Quality Factor. It trades about 0.02 of its total potential returns per unit of risk. Fidelity Quality Factor is currently generating about 0.08 per unit of volatility. If you would invest  5,828  in Fidelity Quality Factor on September 20, 2024 and sell it today you would earn a total of  703.00  from holding Fidelity Quality Factor or generate 12.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Caterpillar  vs.  Fidelity Quality Factor

Caterpillar

Risk-Adjusted Performance

0 of 100

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.

Fidelity Quality Factor

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Quality Factor are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Fidelity Quality is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Caterpillar and Fidelity Quality

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

The idea behind Caterpillar and Fidelity Quality Factor 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.