Correlation Between Caterpillar and RiverFront Dynamic

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

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

Diversification Opportunities for Caterpillar and RiverFront Dynamic

0.55

Correlation Coefficient

Caterpillar  RiverFront Dynamic

Very weak diversification

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

Pair Corralation between Caterpillar and RiverFront Dynamic

Considering the 90-day investment horizon Caterpillar is expected to under-perform the RiverFront Dynamic. In addition to that, Caterpillar is 1.78 times more volatile than RiverFront Dynamic Flex Cap. It trades about -0.08 of its total potential returns per unit of risk. RiverFront Dynamic Flex Cap is currently generating about -0.07 per unit of volatility. If you would invest  5,780  in RiverFront Dynamic Flex Cap on December 31, 2024 and sell it today you would lose (232.00) from holding RiverFront Dynamic Flex Cap or give up 4.01% of portfolio value over 90 days.

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

Caterpillar  vs.  RiverFront Dynamic Flex Cap

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.

RiverFront Dynamic Flex

Risk-Adjusted Performance

Very Weak

Over the last 90 days RiverFront Dynamic Flex Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, RiverFront Dynamic is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Caterpillar and RiverFront Dynamic

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

The idea behind Caterpillar and RiverFront Dynamic Flex Cap 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.

Check out your portfolio center.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.