Correlation Between Caterpillar and FundX Investment

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

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

Diversification Opportunities for Caterpillar and FundX Investment

0.06

Correlation Coefficient

Caterpillar  FundX Investment

Significant diversification

The 3 months correlation between Caterpillar and FundX is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and FundX Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FundX Investment Trust 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 FundX Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FundX Investment Trust has no effect on the direction of Caterpillar i.e., Caterpillar and FundX Investment go up and down completely randomly.

Pair Corralation between Caterpillar and FundX Investment

Considering the 90-day investment horizon Caterpillar is expected to under-perform the FundX Investment. In addition to that, Caterpillar is 2.04 times more volatile than FundX Investment Trust. It trades about -0.18 of its total potential returns per unit of risk. FundX Investment Trust is currently generating about -0.05 per unit of volatility. If you would invest  4,426  in FundX Investment Trust on December 3, 2024 and sell it today you would lose (110.66) from holding FundX Investment Trust or give up 2.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Caterpillar  vs.  FundX Investment Trust

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 weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

FundX Investment Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days FundX Investment Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, FundX Investment 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 FundX Investment

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

The idea behind Caterpillar and FundX Investment Trust 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.