Correlation Between Caterpillar and ROC Energy

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

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

Diversification Opportunities for Caterpillar and ROC Energy

-0.41

Correlation Coefficient

Caterpillar  ROC Energy

Very good diversification

The 3 months correlation between Caterpillar and ROC is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and ROC Energy Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ROC Energy Acquisition 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 ROC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ROC Energy Acquisition has no effect on the direction of Caterpillar i.e., Caterpillar and ROC Energy go up and down completely randomly.

Pair Corralation between Caterpillar and ROC Energy

If you would invest  34,407  in Caterpillar on September 13, 2024 and sell it today you would earn a total of  4,432  from holding Caterpillar or generate 12.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	1.59%
Values	Daily Returns

Caterpillar  vs.  ROC Energy Acquisition

Caterpillar

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

ROC Energy Acquisition

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ROC Energy Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ROC Energy is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Caterpillar and ROC Energy

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

The idea behind Caterpillar and ROC Energy Acquisition 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.