Correlation Between Caterpillar and Hartford Short

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

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

Diversification Opportunities for Caterpillar and Hartford Short

-0.55

Correlation Coefficient

Caterpillar  Hartford Short

Excellent diversification

The 3 months correlation between Caterpillar and Hartford is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Hartford Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hartford Short Duration 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 Hartford Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hartford Short Duration has no effect on the direction of Caterpillar i.e., Caterpillar and Hartford Short go up and down completely randomly.

Pair Corralation between Caterpillar and Hartford Short

Considering the 90-day investment horizon Caterpillar is expected to generate 15.92 times more return on investment than Hartford Short. However, Caterpillar is 15.92 times more volatile than Hartford Short Duration. It trades about 0.05 of its potential returns per unit of risk. Hartford Short Duration is currently generating about 0.24 per unit of risk. If you would invest  33,303  in Caterpillar on October 10, 2024 and sell it today you would earn a total of  2,997  from holding Caterpillar or generate 9.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.2%
Values	Daily Returns

Caterpillar  vs.  Hartford Short Duration

Caterpillar

Risk-Adjusted Performance

0 of 100

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.

Hartford Short Duration

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hartford Short Duration are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Hartford Short is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Caterpillar and Hartford Short

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

The idea behind Caterpillar and Hartford Short Duration 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 Stocks Directory module to find actively traded stocks across global markets.