Correlation Between Caterpillar and SoFi Social

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

By analyzing existing cross correlation between Caterpillar and SoFi Social 50, you can compare the effects of market volatilities on Caterpillar and SoFi Social 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 SoFi Social. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and SoFi Social.

Diversification Opportunities for Caterpillar and SoFi Social

-0.35

Correlation Coefficient

Caterpillar  SoFi Social

Very good diversification

The 3 months correlation between Caterpillar and SoFi is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and SoFi Social 50 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SoFi Social 50 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 SoFi Social. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SoFi Social 50 has no effect on the direction of Caterpillar i.e., Caterpillar and SoFi Social go up and down completely randomly.

Pair Corralation between Caterpillar and SoFi Social

Considering the 90-day investment horizon Caterpillar is expected to under-perform the SoFi Social. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 1.64 times less risky than SoFi Social. The stock trades about -0.42 of its potential returns per unit of risk. The SoFi Social 50 is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  4,428  in SoFi Social 50 on October 10, 2024 and sell it today you would lose (72.00) from holding SoFi Social 50 or give up 1.63% of portfolio value over 90 days.

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

Caterpillar  vs.  SoFi Social 50

Caterpillar

Risk-Adjusted Performance

0 of 100

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.

SoFi Social 50

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SoFi Social 50 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, SoFi Social reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and SoFi Social

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

The idea behind Caterpillar and SoFi Social 50 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.