Correlation Between Caterpillar and Innovator Growth

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

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

Diversification Opportunities for Caterpillar and Innovator Growth

0.61

Correlation Coefficient

Caterpillar  Innovator Growth

Poor diversification

The 3 months correlation between Caterpillar and Innovator is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Innovator Growth Accelerated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Growth Acc 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 Innovator Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Growth Acc has no effect on the direction of Caterpillar i.e., Caterpillar and Innovator Growth go up and down completely randomly.

Pair Corralation between Caterpillar and Innovator Growth

Considering the 90-day investment horizon Caterpillar is expected to generate 1.74 times more return on investment than Innovator Growth. However, Caterpillar is 1.74 times more volatile than Innovator Growth Accelerated. It trades about 0.09 of its potential returns per unit of risk. Innovator Growth Accelerated is currently generating about 0.08 per unit of risk. If you would invest  31,994  in Caterpillar on September 15, 2024 and sell it today you would earn a total of  6,057  from holding Caterpillar or generate 18.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.21%
Values	Daily Returns

Caterpillar  vs.  Innovator Growth Accelerated

Caterpillar

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Caterpillar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Innovator Growth Acc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator Growth Accelerated are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward-looking indicators, Innovator Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Caterpillar and Innovator Growth

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

The idea behind Caterpillar and Innovator Growth Accelerated 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.