Correlation Between Caterpillar and Hartford Multifactor

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

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

Diversification Opportunities for Caterpillar and Hartford Multifactor

0.78

Correlation Coefficient

Caterpillar  Hartford Multifactor

Poor diversification

The 3 months correlation between Caterpillar and Hartford is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Hartford Multifactor Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hartford Multifactor 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 Hartford Multifactor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hartford Multifactor has no effect on the direction of Caterpillar i.e., Caterpillar and Hartford Multifactor go up and down completely randomly.

Pair Corralation between Caterpillar and Hartford Multifactor

Considering the 90-day investment horizon Caterpillar is expected to generate 2.57 times more return on investment than Hartford Multifactor. However, Caterpillar is 2.57 times more volatile than Hartford Multifactor Equity. It trades about 0.08 of its potential returns per unit of risk. Hartford Multifactor Equity is currently generating about 0.11 per unit of risk. If you would invest  25,565  in Caterpillar on September 12, 2024 and sell it today you would earn a total of  13,274  from holding Caterpillar or generate 51.92% return on investment over 90 days.

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

Caterpillar  vs.  Hartford Multifactor Equity

Caterpillar

Risk-Adjusted Performance

9 of 100

OK

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

Hartford Multifactor

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hartford Multifactor Equity are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Hartford Multifactor 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 Hartford Multifactor

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

The idea behind Caterpillar and Hartford Multifactor Equity 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .