Correlation Between Caterpillar and Insmed

Can any of the company-specific risk be diversified away by investing in both Caterpillar and Insmed 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 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

-0.48

Correlation Coefficient

Caterpillar  Insmed

Very good diversification

The 3 months correlation between Caterpillar and Insmed is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Insmed Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insmed Inc and Caterpillar 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 Caterpillar are associated (or correlated) with Insmed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insmed Inc has no effect on the direction of Caterpillar i.e., Caterpillar and Insmed go up and down completely randomly.

Pair Corralation between Caterpillar and Insmed

Considering the 90-day investment horizon Caterpillar is expected to generate 123.15 times less return on investment than Insmed. But when comparing it to its historical volatility, Caterpillar is 10.59 times less risky than Insmed. It trades about 0.01 of its potential returns per unit of risk. Insmed Inc is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,500  in Insmed Inc on April 28, 2024 and sell it today you would earn a total of  4,954  from holding Insmed Inc or generate 198.16% return on investment over 90 days.

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

Caterpillar  vs.  Insmed Inc

Caterpillar

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 1 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Insmed Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Insmed Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Insmed displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Insmed

The 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.

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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.