Correlation Between Caterpillar and Sun Hung

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

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

Diversification Opportunities for Caterpillar and Sun Hung

-0.69

Correlation Coefficient

Caterpillar  Sun Hung

Excellent diversification

The 3 months correlation between Caterpillar and Sun is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Sun Hung Kai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Hung Kai 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 Sun Hung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Hung Kai has no effect on the direction of Caterpillar i.e., Caterpillar and Sun Hung go up and down completely randomly.

Pair Corralation between Caterpillar and Sun Hung

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Sun Hung. In addition to that, Caterpillar is 1.24 times more volatile than Sun Hung Kai. It trades about -0.05 of its total potential returns per unit of risk. Sun Hung Kai is currently generating about 0.0 per unit of volatility. If you would invest  957.00  in Sun Hung Kai on December 29, 2024 and sell it today you would lose (5.00) from holding Sun Hung Kai or give up 0.52% of portfolio value over 90 days.

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

Caterpillar  vs.  Sun Hung Kai

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 comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Sun Hung Kai

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sun Hung Kai has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking indicators, Sun Hung is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and Sun Hung

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

The idea behind Caterpillar and Sun Hung Kai 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 Transaction History module to view history of all your transactions and understand their impact on performance.