Correlation Between Caterpillar and Otsuka Holdings

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

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

Diversification Opportunities for Caterpillar and Otsuka Holdings

0.57

Correlation Coefficient

Caterpillar  Otsuka Holdings

Very weak diversification

The 3 months correlation between Caterpillar and Otsuka is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Otsuka Holdings Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otsuka 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 Otsuka Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otsuka Holdings has no effect on the direction of Caterpillar i.e., Caterpillar and Otsuka Holdings go up and down completely randomly.

Pair Corralation between Caterpillar and Otsuka Holdings

Considering the 90-day investment horizon Caterpillar is expected to generate 1.29 times more return on investment than Otsuka Holdings. However, Caterpillar is 1.29 times more volatile than Otsuka Holdings Co. It trades about 0.29 of its potential returns per unit of risk. Otsuka Holdings Co is currently generating about -0.31 per unit of risk. If you would invest  36,623  in Caterpillar on October 25, 2024 and sell it today you would earn a total of  3,138  from holding Caterpillar or generate 8.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Caterpillar  vs.  Otsuka Holdings Co

Caterpillar

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Otsuka Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Otsuka Holdings Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Caterpillar and Otsuka Holdings

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

The idea behind Caterpillar and Otsuka Holdings Co 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.