Correlation Between Easy Software and Caterpillar

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

By analyzing existing cross correlation between Easy Software AG and Caterpillar, you can compare the effects of market volatilities on Easy Software and Caterpillar 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 Easy Software with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Easy Software and Caterpillar.

Diversification Opportunities for Easy Software and Caterpillar

-0.19

Correlation Coefficient

Easy Software  Caterpillar

Good diversification

The 3 months correlation between Easy and Caterpillar is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Easy Software AG and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Easy Software 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 Easy Software AG are associated (or correlated) with Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of Easy Software i.e., Easy Software and Caterpillar go up and down completely randomly.

Pair Corralation between Easy Software and Caterpillar

Assuming the 90 days trading horizon Easy Software AG is expected to generate 1.26 times more return on investment than Caterpillar. However, Easy Software is 1.26 times more volatile than Caterpillar. It trades about 0.0 of its potential returns per unit of risk. Caterpillar is currently generating about -0.08 per unit of risk. If you would invest  1,840  in Easy Software AG on December 25, 2024 and sell it today you would lose (20.00) from holding Easy Software AG or give up 1.09% of portfolio value over 90 days.

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

Easy Software AG  vs.  Caterpillar

Easy Software AG

Risk-Adjusted Performance

Very Weak

Over the last 90 days Easy Software AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Easy Software is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

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 unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Easy Software and Caterpillar

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

The idea behind Easy Software AG and Caterpillar 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.