Correlation Between Caterpillar and Sunstone Hotel

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

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

Diversification Opportunities for Caterpillar and Sunstone Hotel

-0.03

Correlation Coefficient

Caterpillar  Sunstone Hotel

Good diversification

The 3 months correlation between Caterpillar and Sunstone is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Sunstone Hotel Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunstone Hotel Investors 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 Sunstone Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunstone Hotel Investors has no effect on the direction of Caterpillar i.e., Caterpillar and Sunstone Hotel go up and down completely randomly.

Pair Corralation between Caterpillar and Sunstone Hotel

Assuming the 90 days trading horizon Caterpillar is expected to generate 2.17 times less return on investment than Sunstone Hotel. In addition to that, Caterpillar is 1.03 times more volatile than Sunstone Hotel Investors. It trades about 0.06 of its total potential returns per unit of risk. Sunstone Hotel Investors is currently generating about 0.14 per unit of volatility. If you would invest  937.00  in Sunstone Hotel Investors on October 25, 2024 and sell it today you would earn a total of  163.00  from holding Sunstone Hotel Investors or generate 17.4% return on investment over 90 days.

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

Caterpillar  vs.  Sunstone Hotel Investors

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. Despite nearly fragile basic indicators, Caterpillar may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Sunstone Hotel Investors

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sunstone Hotel Investors are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sunstone Hotel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Sunstone Hotel

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

The idea behind Caterpillar and Sunstone Hotel Investors 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.