Correlation Between Caterpillar and Orea Mining

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

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

Diversification Opportunities for Caterpillar and Orea Mining

-0.31

Correlation Coefficient

Caterpillar  Orea Mining

Very good diversification

The 3 months correlation between Caterpillar and Orea is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Orea Mining Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orea Mining Corp 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 Orea Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orea Mining Corp has no effect on the direction of Caterpillar i.e., Caterpillar and Orea Mining go up and down completely randomly.

Pair Corralation between Caterpillar and Orea Mining

Considering the 90-day investment horizon Caterpillar is expected to generate 0.06 times more return on investment than Orea Mining. However, Caterpillar is 16.78 times less risky than Orea Mining. It trades about -0.09 of its potential returns per unit of risk. Orea Mining Corp is currently generating about -0.25 per unit of risk. If you would invest  36,456  in Caterpillar on January 21, 2024 and sell it today you would lose (990.00) from holding Caterpillar or give up 2.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Caterpillar  vs.  Orea Mining Corp

Caterpillar

Risk-Adjusted Performance

19 of 100

Solid

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

Orea Mining Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orea Mining Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Caterpillar and Orea Mining

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

The idea behind Caterpillar and Orea Mining Corp 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.