Correlation Between Caterpillar and Jackson Financial

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

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

Diversification Opportunities for Caterpillar and Jackson Financial

0.43

Correlation Coefficient

Caterpillar  Jackson Financial

Very weak diversification

The 3 months correlation between Caterpillar and Jackson is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Jackson Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jackson Financial 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 Jackson Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jackson Financial has no effect on the direction of Caterpillar i.e., Caterpillar and Jackson Financial go up and down completely randomly.

Pair Corralation between Caterpillar and Jackson Financial

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Jackson Financial. In addition to that, Caterpillar is 2.5 times more volatile than Jackson Financial. It trades about -0.08 of its total potential returns per unit of risk. Jackson Financial is currently generating about -0.01 per unit of volatility. If you would invest  2,626  in Jackson Financial on December 30, 2024 and sell it today you would lose (14.00) from holding Jackson Financial or give up 0.53% of portfolio value over 90 days.

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

Caterpillar  vs.  Jackson Financial

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 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.

Jackson Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jackson Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Jackson Financial 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 Jackson Financial

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

The idea behind Caterpillar and Jackson Financial 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.