Correlation Between Floor Decor and Caterpillar
Can any of the company-specific risk be diversified away by investing in both Floor Decor 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 Floor Decor and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Floor Decor Holdings and Caterpillar, you can compare the effects of market volatilities on Floor Decor 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 Floor Decor with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Floor Decor and Caterpillar.
Diversification Opportunities for Floor Decor and Caterpillar
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Floor and Caterpillar is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Floor Decor Holdings and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Floor Decor 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 Floor Decor Holdings 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 Floor Decor i.e., Floor Decor and Caterpillar go up and down completely randomly.
Pair Corralation between Floor Decor and Caterpillar
Considering the 90-day investment horizon Floor Decor Holdings is expected to generate 1.49 times more return on investment than Caterpillar. However, Floor Decor is 1.49 times more volatile than Caterpillar. It trades about -0.09 of its potential returns per unit of risk. Caterpillar is currently generating about -0.16 per unit of risk. If you would invest 11,198 in Floor Decor Holdings on December 2, 2024 and sell it today you would lose (1,535) from holding Floor Decor Holdings or give up 13.71% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Floor Decor Holdings vs. Caterpillar
Performance |
Timeline |
Floor Decor Holdings |
Caterpillar |
Floor Decor and Caterpillar Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Floor Decor and Caterpillar
The main advantage of trading using opposite Floor Decor and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Floor Decor 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.Floor Decor vs. Arhaus Inc | Floor Decor vs. Live Ventures | Floor Decor vs. Haverty Furniture Companies | Floor Decor vs. Haverty Furniture Companies |
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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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