Correlation Between Caterpillar and Saint Jean

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

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

Diversification Opportunities for Caterpillar and Saint Jean

0.32

Correlation Coefficient

Caterpillar  Saint Jean

Weak diversification

The 3 months correlation between Caterpillar and Saint is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Saint Jean Carbon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Saint Jean Carbon 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 Saint Jean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Saint Jean Carbon has no effect on the direction of Caterpillar i.e., Caterpillar and Saint Jean go up and down completely randomly.

Pair Corralation between Caterpillar and Saint Jean

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Saint Jean. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 12.65 times less risky than Saint Jean. The stock trades about -0.08 of its potential returns per unit of risk. The Saint Jean Carbon is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2.40  in Saint Jean Carbon on December 30, 2024 and sell it today you would lose (1.09) from holding Saint Jean Carbon or give up 45.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Caterpillar  vs.  Saint Jean Carbon

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 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.

Saint Jean Carbon

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Saint Jean Carbon are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Saint Jean reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Saint Jean

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

The idea behind Caterpillar and Saint Jean Carbon 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.