Correlation Between Caterpillar and NSAV Holding

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

By analyzing existing cross correlation between Caterpillar and NSAV Holding, you can compare the effects of market volatilities on Caterpillar and NSAV Holding 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 NSAV Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and NSAV Holding.

Diversification Opportunities for Caterpillar and NSAV Holding

-0.09

Correlation Coefficient

Caterpillar  NSAV Holding

Good diversification

The 3 months correlation between Caterpillar and NSAV is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and NSAV Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NSAV Holding 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 NSAV Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NSAV Holding has no effect on the direction of Caterpillar i.e., Caterpillar and NSAV Holding go up and down completely randomly.

Pair Corralation between Caterpillar and NSAV Holding

Considering the 90-day investment horizon Caterpillar is expected to under-perform the NSAV Holding. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 15.27 times less risky than NSAV Holding. The stock trades about -0.04 of its potential returns per unit of risk. The NSAV Holding is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  0.71  in NSAV Holding on March 5, 2024 and sell it today you would earn a total of  0.34  from holding NSAV Holding or generate 47.89% return on investment over 90 days.

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

Caterpillar  vs.  NSAV Holding

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.

NSAV Holding

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NSAV Holding are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, NSAV Holding showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and NSAV Holding

The main advantage of trading using opposite Caterpillar and NSAV Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, NSAV Holding 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 NSAV Holding will offset losses from the drop in NSAV Holding's long position.

The idea behind Caterpillar and NSAV Holding 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.