Correlation Between Caterpillar and John Hancock

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

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

Diversification Opportunities for Caterpillar and John Hancock

0.63

Correlation Coefficient

Caterpillar  John Hancock

Poor diversification

The 3 months correlation between Caterpillar and John is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and John Hancock Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on John Hancock Exchange 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 John Hancock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of John Hancock Exchange has no effect on the direction of Caterpillar i.e., Caterpillar and John Hancock go up and down completely randomly.

Pair Corralation between Caterpillar and John Hancock

Considering the 90-day investment horizon Caterpillar is expected to under-perform the John Hancock. In addition to that, Caterpillar is 2.83 times more volatile than John Hancock Exchange Traded. It trades about -0.35 of its total potential returns per unit of risk. John Hancock Exchange Traded is currently generating about -0.37 per unit of volatility. If you would invest  2,139  in John Hancock Exchange Traded on October 11, 2024 and sell it today you would lose (58.00) from holding John Hancock Exchange Traded or give up 2.71% of portfolio value over 90 days.

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

Caterpillar  vs.  John Hancock Exchange Traded

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.

John Hancock Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days John Hancock Exchange Traded has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, John Hancock is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and John Hancock

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

The idea behind Caterpillar and John Hancock Exchange Traded 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.