Correlation Between Caterpillar and Tomorrows Scholar

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

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

Diversification Opportunities for Caterpillar and Tomorrows Scholar

0.55

Correlation Coefficient

Caterpillar  Tomorrows Scholar

Very weak diversification

The 3 months correlation between Caterpillar and Tomorrows is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Tomorrows Scholar College in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tomorrows Scholar College 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 Tomorrows Scholar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tomorrows Scholar College has no effect on the direction of Caterpillar i.e., Caterpillar and Tomorrows Scholar go up and down completely randomly.

Pair Corralation between Caterpillar and Tomorrows Scholar

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Tomorrows Scholar. In addition to that, Caterpillar is 5.97 times more volatile than Tomorrows Scholar College. It trades about -0.05 of its total potential returns per unit of risk. Tomorrows Scholar College is currently generating about -0.13 per unit of volatility. If you would invest  1,031  in Tomorrows Scholar College on October 8, 2024 and sell it today you would lose (23.00) from holding Tomorrows Scholar College or give up 2.23% of portfolio value over 90 days.

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

Caterpillar  vs.  Tomorrows Scholar College

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 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.

Tomorrows Scholar College

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tomorrows Scholar College has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Tomorrows Scholar 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 Tomorrows Scholar

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

The idea behind Caterpillar and Tomorrows Scholar College 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.