Correlation Between Edgewise Therapeutics and Caterpillar

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

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

Diversification Opportunities for Edgewise Therapeutics and Caterpillar

0.53

Correlation Coefficient

Edgewise Therapeutics  Caterpillar

Very weak diversification

The 3 months correlation between Edgewise and Caterpillar is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Edgewise Therapeutics and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Edgewise Therapeutics 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 Edgewise Therapeutics 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 Edgewise Therapeutics i.e., Edgewise Therapeutics and Caterpillar go up and down completely randomly.

Pair Corralation between Edgewise Therapeutics and Caterpillar

Given the investment horizon of 90 days Edgewise Therapeutics is expected to under-perform the Caterpillar. In addition to that, Edgewise Therapeutics is 2.11 times more volatile than Caterpillar. It trades about -0.05 of its total potential returns per unit of risk. Caterpillar is currently generating about -0.08 per unit of volatility. If you would invest  36,168  in Caterpillar on December 30, 2024 and sell it today you would lose (3,199) from holding Caterpillar or give up 8.84% of portfolio value over 90 days.

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

Edgewise Therapeutics  vs.  Caterpillar

Edgewise Therapeutics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Edgewise Therapeutics 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 strong and the current disturbance on Wall Street may also be a sign of long term gains for the company 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 unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Edgewise Therapeutics and Caterpillar

The main advantage of trading using opposite Edgewise Therapeutics and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edgewise Therapeutics 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 Edgewise Therapeutics 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.