Correlation Between ProShares UltraShort and Caterpillar
Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort 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 ProShares UltraShort and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ProShares UltraShort SP500 and Caterpillar, you can compare the effects of market volatilities on ProShares UltraShort 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 ProShares UltraShort with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and Caterpillar.
Diversification Opportunities for ProShares UltraShort and Caterpillar
-0.82 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between ProShares and Caterpillar is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort SP500 and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and ProShares UltraShort 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 ProShares UltraShort SP500 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 ProShares UltraShort i.e., ProShares UltraShort and Caterpillar go up and down completely randomly.
Pair Corralation between ProShares UltraShort and Caterpillar
Considering the 90-day investment horizon ProShares UltraShort SP500 is expected to under-perform the Caterpillar. But the etf apears to be less risky and, when comparing its historical volatility, ProShares UltraShort SP500 is 1.12 times less risky than Caterpillar. The etf trades about -0.03 of its potential returns per unit of risk. The Caterpillar is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 25,696 in Caterpillar on January 24, 2024 and sell it today you would earn a total of 10,065 from holding Caterpillar or generate 39.17% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Significant |
Accuracy | 99.46% |
Values | Daily Returns |
ProShares UltraShort SP500 vs. Caterpillar
Performance |
Timeline |
ProShares UltraShort |
Caterpillar |
ProShares UltraShort and Caterpillar Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with ProShares UltraShort and Caterpillar
The main advantage of trading using opposite ProShares UltraShort and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort 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 ProShares UltraShort SP500 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.Caterpillar vs. AGCO Corporation | Caterpillar vs. CNH Industrial NV | Caterpillar vs. Deere Company | Caterpillar vs. Lindsay |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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