diversifiable risk of combining Caterpillar and Desktop Metal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Desktop Metal, you can compare the effects of market volatilities on Caterpillar and Desktop Metal 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 Caterpillar with a short position of Desktop Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Desktop Metal.
Diversification Opportunities for Caterpillar and Desktop Metal
Pair Corralation between Caterpillar and Desktop Metal
Considering the 90-day investment horizon Caterpillar is expected to generate 0.35 times more return on investment than Desktop Metal. However, Caterpillar is 2.87 times less risky than Desktop Metal. It trades about 0.07 of its potential returns per unit of risk. Desktop Metal is currently generating about -0.09 per unit of risk. If you would invest 25,398 in Caterpillar on December 1, 2023 and sell it today you would earn a total of 7,558 from holding Caterpillar or generate 29.76% return on investment over 90 days.
|3 Months [change]
Caterpillar vs. Desktop Metal
Caterpillar and Desktop Metal Volatility Contrast
Pair Trading with Caterpillar and Desktop MetalThe main advantage of trading using opposite Caterpillar and Desktop Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Desktop Metal 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 Desktop Metal will offset losses from the drop in Desktop Metal's long position. The idea behind Caterpillar and Desktop Metal 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.
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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