Correlation Between Caterpillar and Short Precious

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

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

Diversification Opportunities for Caterpillar and Short Precious

-0.46

Correlation Coefficient

Caterpillar  Short Precious

Very good diversification

The 3 months correlation between Caterpillar and Short is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Short Precious Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Precious Metals 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 Short Precious. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Precious Metals has no effect on the direction of Caterpillar i.e., Caterpillar and Short Precious go up and down completely randomly.

Pair Corralation between Caterpillar and Short Precious

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Short Precious. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 1.84 times less risky than Short Precious. The stock trades about -0.41 of its potential returns per unit of risk. The Short Precious Metals is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  973.00  in Short Precious Metals on October 9, 2024 and sell it today you would earn a total of  54.00  from holding Short Precious Metals or generate 5.55% return on investment over 90 days.

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

Caterpillar  vs.  Short Precious Metals

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.

Short Precious Metals

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Short Precious Metals are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly fragile forward indicators, Short Precious may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Caterpillar and Short Precious

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

The idea behind Caterpillar and Short Precious Metals 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.