Correlation Between Caterpillar and REDFLEX HOLDINGS

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

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

Diversification Opportunities for Caterpillar and REDFLEX HOLDINGS

-0.11

Correlation Coefficient

Caterpillar  REDFLEX HOLDINGS

Good diversification

The 3 months correlation between Caterpillar and REDFLEX is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and REDFLEX HOLDINGS LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REDFLEX HOLDINGS LTD 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 REDFLEX HOLDINGS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REDFLEX HOLDINGS LTD has no effect on the direction of Caterpillar i.e., Caterpillar and REDFLEX HOLDINGS go up and down completely randomly.

Pair Corralation between Caterpillar and REDFLEX HOLDINGS

Considering the 90-day investment horizon Caterpillar is expected to under-perform the REDFLEX HOLDINGS. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 9.34 times less risky than REDFLEX HOLDINGS. The stock trades about -0.08 of its potential returns per unit of risk. The REDFLEX HOLDINGS LTD is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2.51  in REDFLEX HOLDINGS LTD on December 30, 2024 and sell it today you would earn a total of  1.29  from holding REDFLEX HOLDINGS LTD or generate 51.39% return on investment over 90 days.

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

Caterpillar  vs.  REDFLEX HOLDINGS LTD

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.

REDFLEX HOLDINGS LTD

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in REDFLEX HOLDINGS LTD are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, REDFLEX HOLDINGS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and REDFLEX HOLDINGS

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

The idea behind Caterpillar and REDFLEX HOLDINGS LTD 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.