Correlation Between Xos and Caterpillar

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

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

Diversification Opportunities for Xos and Caterpillar

-0.22

Correlation Coefficient

Xos  Caterpillar

Very good diversification

The 3 months correlation between Xos and Caterpillar is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Xos Inc and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Xos 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 Xos Inc 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 Xos i.e., Xos and Caterpillar go up and down completely randomly.

Pair Corralation between Xos and Caterpillar

Considering the 90-day investment horizon Xos Inc is expected to generate 3.17 times more return on investment than Caterpillar. However, Xos is 3.17 times more volatile than Caterpillar. It trades about 0.09 of its potential returns per unit of risk. Caterpillar is currently generating about -0.04 per unit of risk. If you would invest  750.00  in Xos Inc on March 5, 2024 and sell it today you would earn a total of  44.00  from holding Xos Inc or generate 5.87% return on investment over 90 days.

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

Xos Inc  vs.  Caterpillar

Xos Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xos Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in July 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Caterpillar

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Xos and Caterpillar

The main advantage of trading using opposite Xos and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xos 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 Xos Inc 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..