diversifiable risk of combining Caterpillar and Insmed into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Insmed Inc, you can compare the effects of market volatilities on Caterpillar and Insmed 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 Insmed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Insmed.
Diversification Opportunities for Caterpillar and Insmed
Pair Corralation between Caterpillar and Insmed
Considering the 90-day investment horizon Caterpillar is expected to generate 0.67 times more return on investment than Insmed. However, Caterpillar is 1.48 times less risky than Insmed. It trades about 0.15 of its potential returns per unit of risk. Insmed Inc is currently generating about 0.07 per unit of risk. If you would invest 26,503 in Caterpillar on December 3, 2023 and sell it today you would earn a total of 7,167 from holding Caterpillar or generate 27.04% return on investment over 90 days.
Caterpillar vs. Insmed Inc
Caterpillar and Insmed Volatility Contrast
Pair Trading with Caterpillar and InsmedThe main advantage of trading using opposite Caterpillar and Insmed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Insmed 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 Insmed will offset losses from the drop in Insmed's long position. The idea behind Caterpillar and Insmed Inc 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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