Correlation Between Caterpillar and Fidelity Value

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Can any of the company-specific risk be diversified away by investing in both Caterpillar and Fidelity Value 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 Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Fidelity Value Factor, you can compare the effects of market volatilities on Caterpillar and Fidelity Value 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 Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Fidelity Value.

Diversification Opportunities for Caterpillar and Fidelity Value

0.39
  Correlation Coefficient

Weak diversification

The 3 months correlation between Caterpillar and Fidelity is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Fidelity Value Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Value 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 Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Value Factor has no effect on the direction of Caterpillar i.e., Caterpillar and Fidelity Value go up and down completely randomly.

Pair Corralation between Caterpillar and Fidelity Value

Considering the 90-day investment horizon Caterpillar is expected to generate 2.21 times more return on investment than Fidelity Value. However, Caterpillar is 2.21 times more volatile than Fidelity Value Factor. It trades about 0.06 of its potential returns per unit of risk. Fidelity Value Factor is currently generating about 0.1 per unit of risk. If you would invest  23,104  in Caterpillar on September 20, 2024 and sell it today you would earn a total of  12,933  from holding Caterpillar or generate 55.98% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Caterpillar  vs.  Fidelity Value Factor

 Performance 
       Timeline  
Caterpillar 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
Fidelity Value Factor 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Value Factor are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Fidelity Value is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Caterpillar and Fidelity Value Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and Fidelity Value

The main advantage of trading using opposite Caterpillar and Fidelity Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Fidelity Value 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 Value will offset losses from the drop in Fidelity Value's long position.
The idea behind Caterpillar and Fidelity Value 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.
Check out your portfolio center.
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.

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