diversifiable risk of combining Caterpillar and ProShares Hedge into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and ProShares Hedge Replication, you can compare the effects of market volatilities on Caterpillar and ProShares Hedge 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 ProShares Hedge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and ProShares Hedge.
Diversification Opportunities for Caterpillar and ProShares Hedge
Pair Corralation between Caterpillar and ProShares Hedge
Considering the 90-day investment horizon Caterpillar is expected to generate 3.64 times more return on investment than ProShares Hedge. However, Caterpillar is 3.64 times more volatile than ProShares Hedge Replication. It trades about 0.28 of its potential returns per unit of risk. ProShares Hedge Replication is currently generating about 0.11 per unit of risk. If you would invest 28,883 in Caterpillar on November 24, 2023 and sell it today you would earn a total of 2,831 from holding Caterpillar or generate 9.8% return on investment over 90 days.
Caterpillar vs. ProShares Hedge Replication
Caterpillar and ProShares Hedge Volatility Contrast
Pair Trading with Caterpillar and ProShares HedgeThe main advantage of trading using opposite Caterpillar and ProShares Hedge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, ProShares Hedge 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 ProShares Hedge will offset losses from the drop in ProShares Hedge's long position. The idea behind Caterpillar and ProShares Hedge Replication 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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