Correlation Between Caterpillar and UNITEDHEALTH

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

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

Diversification Opportunities for Caterpillar and UNITEDHEALTH

-0.41

Correlation Coefficient

Caterpillar  UNITEDHEALTH

Very good diversification

The 3 months correlation between Caterpillar and UNITEDHEALTH is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and UNITEDHEALTH GROUP INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITEDHEALTH GROUP INC 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 UNITEDHEALTH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNITEDHEALTH GROUP INC has no effect on the direction of Caterpillar i.e., Caterpillar and UNITEDHEALTH go up and down completely randomly.

Pair Corralation between Caterpillar and UNITEDHEALTH

Considering the 90-day investment horizon Caterpillar is expected to generate 3.92 times more return on investment than UNITEDHEALTH. However, Caterpillar is 3.92 times more volatile than UNITEDHEALTH GROUP INC. It trades about 0.07 of its potential returns per unit of risk. UNITEDHEALTH GROUP INC is currently generating about -0.07 per unit of risk. If you would invest  35,385  in Caterpillar on September 18, 2024 and sell it today you would earn a total of  2,507  from holding Caterpillar or generate 7.08% return on investment over 90 days.

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

Caterpillar  vs.  UNITEDHEALTH GROUP INC

Caterpillar

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Caterpillar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

UNITEDHEALTH GROUP INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UNITEDHEALTH GROUP INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, UNITEDHEALTH is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and UNITEDHEALTH

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

The idea behind Caterpillar and UNITEDHEALTH GROUP INC 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.