Correlation Between Caterpillar and Goodness Growth

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

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

Diversification Opportunities for Caterpillar and Goodness Growth

-0.33

Correlation Coefficient

Caterpillar  Goodness Growth

Very good diversification

The 3 months correlation between Caterpillar and Goodness is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Goodness Growth Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodness Growth Holdings 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 Goodness Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goodness Growth Holdings has no effect on the direction of Caterpillar i.e., Caterpillar and Goodness Growth go up and down completely randomly.

Pair Corralation between Caterpillar and Goodness Growth

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Goodness Growth. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 9.2 times less risky than Goodness Growth. The stock trades about -0.15 of its potential returns per unit of risk. The Goodness Growth Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  35.00  in Goodness Growth Holdings on December 4, 2024 and sell it today you would earn a total of  7.00  from holding Goodness Growth Holdings or generate 20.0% return on investment over 90 days.

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

Caterpillar  vs.  Goodness Growth Holdings

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 unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Goodness Growth Holdings

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Goodness Growth Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Goodness Growth reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Goodness Growth

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

The idea behind Caterpillar and Goodness Growth Holdings 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.